Disability and income protection insurance
This domain tests whether you can match an income protection definition to a client's occupation, cash flow and existing entitlements, because the definition - not the premium - decides whether a claim is paid.
The definitional ladder
- Own occupation: pays if the client cannot perform their own occupation. Broadest and most expensive.
- Any occupation: pays only if unable to work in any occupation suited by education, training or experience. Much harder to claim.
- Loss of earnings / indemnity: pays a proportion of actual income lost, proven monthly.
- Agreed value: benefit fixed at application, no ongoing income proof.
- Activities of daily living: pays on inability to perform specified tasks.
Structural settings
Benefit period (two years to age 65), waiting period (14, 30, 60 or 90 days), maximum benefit (commonly up to 75% of pre-disability income), indexation, premium waiver, residual disability benefits, return-to-work support, and occupational classification at application.
The ACC overlay
The Accident Compensation Act 2001 covers injury and bars damages claims. Income protection therefore matters most for illness - cancer, cardiac, musculoskeletal conditions not caused by accident - and benefits are typically offset against ACC, sick leave and other income.
Worked example
A dentist earning $180,000 wants cover. Own-occupation cover with a 30-day wait at 75% gives $135,000 a year, less any ACC or employer entitlements. An indemnity policy would be cheaper but requires monthly proof of lost income - poor fit for a business owner with variable drawings.
Traps
Assuming ACC covers illness; assuming the occupation tested at claim is the one held at application when the policy tests current occupation; ignoring offsets; and forgetting that personal premiums are not deductible while business premiums usually are.