How to protect your lifestyle if you can't work

  • 20/10/2015

This article is sponsored by AMP

For thousands of Kiwis that earn an income, not being able to work due to a long-term illness could spell financial disaster for them and their families.

Insurance and retirement savings provider, AMP, says that nearly a million households in New Zealand are at risk of struggling financially should the major earner not be able to work. These are households that might not be well off, but are earning too much to qualify for a benefit.

Here are four common misconceptions people have about getting a serious illness and not being able to work:

1. It won't happen to me This is really rolling the dice and gambling your lifestyle. It could, and does, happen to anyone at any time. Are you prepared to pay if you can't earn an income for longer than your sick pay allows? A Financial Services Council (FSC) survey (2012) reported that one in seven households experienced a serious illness over the past five years that resulted in an inability to work for three months or longer. Could your savings keep you afloat for this long?

2. The Government will look after me We're lucky that we live in a country that provides a public health care system, ACC, and benefits, but in a lot of cases this isn't enough to help people maintain their lifestyle if they're unable to work due to serious illness.

ACC can pay out up to 80 percent of your income for health problems caused by accidental injury, but not sickness. If you think that sounds OK, the FSC says that you are two to three times more likely to be off work for six months or more because of sickness than an accident.

In 2013, the sickness benefit was replaced by Jobseeker Support Benefit. For those with children, this can give a benefit of up to $391 a week to those who are not working due to a health condition, injury or disability. This amount often isn't enough to cover living expenses for many households.

3. Health insurance is all I need Having health insurance is a great way to help pay for specialists, procedures and operations, but remember, it only covers the cost of repairing your body and won't help you cover the mortgage or buy food for the family while you wait to return to work.

4. A crowdfunding site will help me More and more are now turning to crowdfunding sites to help raise the money for people looking to meet their living expenses or seek alternative treatments that the New Zealand health system can't provide. Kiwis are a generous bunch but this sense of charity may only go so far with more and more people asking for money to help them out of these situations.

So how can you protect your lifestyle? You can put insurance in place that helps you out should you not be able to work for a period of time. Doing this can see you receive a one-off lump sum of money or a steady income over time if you can't work due to injury or serious illness.

Trauma insurance, sometimes called Crisis or Critical Illness Cover, is a lump sum payment of money that's paid to you should you suffer a serious illness or injury, or undergo a serious medical procedure that's outlined in your policy. You set the amount and can spend the money on anything you like – the mortgage, overseas medical treatment not covered by health insurance expenses, or even used to do those things you've always wanted to but couldn't.

Rather than a lump sum payment, income protection will give you a monthly payment of a set amount for a period of time that you agree to, or up to a percentage (such as 75 percent) of your regular income.

Get the right cover for you and your family Talking to the right people can make this process easy. Qualified professionals such as financial advisers can look at your needs and budget, talk through possible scenarios that relate to you and your family, so you've got the right cover to maintain your lifestyle should you not be able to work due to serious illness.

Disclaimer: Information provided is stated accurately to the best of the respondent's knowledge at the time of publication. It is general in nature and should not be construed, or relied on, as a recommendation to invest in a particular financial product or class of financial product. Readers should seek independent financial advice before making an investment decision.