Unemployment up. Job security down. Redundancy vs Income insurance.
The number of Kiwis facing layoff is expected to rise in the coming weeks and months as the full impact of the COVID pandemic is felt in our economy.
Yesterday's unemployment numbers from Stats NZ showed an unsurprising increase in New Zealand's unemployment rate to 4.2%. Treasury's report from last month modelled three different scenarios with varying peak unemployment of between 13% to 26%. To put this into context, during the Global Financial Crisis of 2008/9, NZ's peak unemployment was 6.5%.
The government has acted swiftly and announced financial support of about $20B to keep the economy moving; with $10B already handed out through wage subsidies in the past few weeks. It is expected that the government will continue to roll out different measures to do all they can to help the economy and keep Kiwis employed.
In this uncertain climate, there has been an increase in questions and queries about insurance policies, especially when it comes to Redundancy and Income Protection insurance. There seems to be much confusion between the two of them. Let us explore how they are different:
Generally, this cover offers protection against involuntary redundancy from employment. This usually means that your employer no longer requires your role in the business and have asked you to leave. Getting fired or volunteering for redundancy will not make the cut for a claim. Typically, there will be a 30-90 day wait period. This means that you can only make a claim unless you have not been able to find another job during this time. The insurance payout will be a percentage of your income (e.g. 85%) prior to being made redundant or a capped amount. The payout is limited to a time period e.g. 6 months. Insurance companies usually offer this cover as an add-on to other insurance policy such as Income Protection.
Income Protection Insurance
On the other hand, Income Protection is about protecting your income stream if you became ill or injured and you are unable to work or return to the same job you had. This is not the same as the above. It is not related to you losing your job because your employer no longer needs your role. There is also a wait period before you can make a claim and it can range from weeks to months. Typically the longer your wait period, the cheaper the cover. The payout can be for a short period of time (e.g. 1-5 years) or for a longer period (e.g. until you turn 60-70 years old).
Redundancies up, insurers out
Increasingly as businesses face pressures to cut costs as revenue slows, they look to redundancy as the solution. However, due to the increasing chances of redundancies, most, if not all, insurance companies has stopped selling these covers. The risk of claims will need to be assessed and repriced. No insurance company wants to sell a product if they know they are likely to lose money doing it, and on the other hand, no one would buy it if it became so expensive.
Insurance is necessary, the hassle is not
It is important to understand the insurance covers you have in place. Check that they are still right for you. As we had learned from our recent survey, only 20% of Kiwis actively keep on top of their insurance covers. Most buy and forget about their insurance. When misfortune hits, it could mean financial stress for you and your loved ones. Don't let this be your reality.
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