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Protecting Your Income: Beyond Redundancy · That Home Loan Hub

• 0:10
  Speaker 1: Hello and welcome back to that Homeland Hub.
• 0:12
  Speaker 1: I'm joined by Rebecca.
• 0:13
  Speaker 1: Hello, rebecca, hi, how's it going?
• 0:15
  Speaker 1: Great, thank you.
• 0:16
  Speaker 1: How about you?
• 0:17
  Speaker 1: Good, rebecca.
• 0:19
  Speaker 1: Today we are going to cover something that came up from our listeners.
• 0:24
  Speaker 1: One of our listeners reached out and asked us a question about the income insurance and the misconceptions.
• 0:31
  Speaker 2: Yeah, so take it away, okay.
• 0:34
  Speaker 2: So I'll be talking about income protection, mortgage protection, because they're very similar products, so the misconception side of it are very similar.
• 0:41
  Speaker 2: A big one is redundancy.
• 0:44
  Speaker 2: So if people think that they've got income protection, they think if they're made redundant they're covered.
• 0:50
  Speaker 1: So if I have income protection.
• 0:51
  Speaker 1: And suddenly I'm in Wellington, I work for the government.
• 0:52
  Speaker 1: The government lays me off and I'm like protection.
• 0:54
  Speaker 1: And suddenly I'm in Wellington, I work for the government.
• 0:56
  Speaker 1: The government lays me off and I'm like yes, I've got income protection.
• 0:59
  Speaker 1: It will call me for my redundancy Until I find a job.
• 1:04
  Speaker 1: And that's not right.
• 1:05
  Speaker 2: No, okay, why is that Income protection is an illness or injury based.
• 1:10
  Speaker 2: It is covering you if you are unable to work Due to something that's happened to you with your body.
• 1:17
  Speaker 2: It's not redundancy.
• 1:19
  Speaker 2: Redundancy is an add-on you can add to income protection, but it's not a built-in benefit and in particular in Wellington at the moment it's actually hard to get redundancy cover because the insurance companies are being quite strict on any government workers.
• 1:34
  Speaker 1: Interesting, so they had a foresight right.
• 1:36
  Speaker 1: They went hold on a second, there'll be heaps of redundancies coming out and we're going to be out of pocket because people will be claiming on it.
• 1:42
  Speaker 1: So let's just not give them the insurance Exactly.
• 1:44
  Speaker 2: Pretty much Anytime there's anything in the news about an industry in particular that is going through something, the insurance companies watch very carefully and then we start to see, as we apply, they're not covering.
• 1:59
  Speaker 1: Okay, okay, interesting, all right.
• 2:01
  Speaker 1: So income protection and mortgage protection don't have the redundancy element built in within them, but we can get them as an add-on, depending on your industry, depending on the underwriters, if the insurance says yes or no.
• 2:12
  Speaker 1: Still worth a try if you want to.
• 2:14
  Speaker 1: However, in my experience, redundancy cover is not actually that great I mean no, it's not.
• 2:20
  Speaker 2: I mean it covers you six months, but you've also had to have been in the job for a certain amount of time as well.
• 2:24
  Speaker 2: There's a lot of factors to get the claim paid out and a lot of the time by the time it would kick in.
• 2:30
  Speaker 2: Hopefully you've got another job you probably found, probably found another job, yeah.
• 2:34
  Speaker 2: And I think as well, the cost of redundancy is actually quite a lot for what it gives you.
• 2:40
  Speaker 2: The premium is a reasonable amount for what you actually get, whereas in the long run better to put it towards the income protection or the mortgage protection cover.
• 2:50
  Speaker 1: Yeah, because you're more likely to claim for something bigger that happens in life and be off longer.
• 2:54
  Speaker 1: Yeah, like often.
• 2:56
  Speaker 1: You know, we live in a country where the cancer rate is through the roof.
• 3:00
  Speaker 1: So if you've got cancer and you want to take time off work to go through radiotherapy, chemotherapy etc.
• 3:06
  Speaker 1: You're better off getting a much more robust income protection, mortgage protection.
• 3:14
  Speaker 2: Absolutely yeah, and pay way longer.
• 3:15
  Speaker 2: So if you know you don't know how long you're going to be off for something serious like that, and knowing in the back of your mind, if you're going through something like that and you've only got, say, six months, you know that after that you're going to have a problem with bills.
• 3:32
  Speaker 1: Okay, interesting, all right.
• 3:33
  Speaker 1: So what's the current misconception in terms of people thinking, you know, income protection versus mortgage protection If they don't have a mortgage?
• 3:41
  Speaker 1: We've covered that a few episodes ago, but let's just expand on it a little bit more.
• 3:46
  Speaker 2: So we call it mortgage protection, because that's what it originally was.
• 3:49
  Speaker 2: But a lot of insurers have added rent as an option now, so it covers a percentage 110 to 115, depending on the insurer percent of your repayments, whereas income protection is a percentage of your income.
• 4:05
  Speaker 1: And I think you can go up to 70 or 80% of your income 75%.
• 4:08
  Speaker 2: But if you go to 75% then you do have to pay tax on it Interesting.
• 4:13
  Speaker 2: But if you go up 62.5 as the rough amount for an agreed value, which means it's not tax paid, so you get that in the hand.
• 4:21
  Speaker 1: So if you're earning, $100,000 today, you could insure yourself with $62,000.
• 4:27
  Speaker 2: Roughly, it'll probably end up being a little bit.
• 4:29
  Speaker 2: The calculations change as the salary gaps go up.
• 4:35
  Speaker 2: So like 70,000 and under is 62.5 and the next step is a different percentage.
• 4:40
  Speaker 2: Yeah, that gives you a rough idea.
• 4:42
  Speaker 1: Yeah.
• 4:42
  Speaker 1: So let's take John, for example.
• 4:44
  Speaker 1: We've got a client, John, and he's 25 and he's single.
• 4:48
  Speaker 1: What sort of cover would he need?
• 4:51
  Speaker 1: Income protection or mortgage protection, and he's earning 100K a year.
• 4:55
  Speaker 2: So we would start doing a base of mortgage protection.
• 4:58
  Speaker 2: So, even if he doesn't own a home, like I said before, rent, so covering his rent or his mortgage and then topping it up with income protection.
• 5:06
  Speaker 2: So the rent or mortgage, obviously you cover that, but you've got all those other expenses that you're going to have every month.
• 5:13
  Speaker 2: You might be able to have a house, but you know, do you have power, do you have internet, do you have food?
• 5:20
  Speaker 2: So we would top up with income protection.
• 5:23
  Speaker 1: Okay, cool.
• 5:24
  Speaker 1: How about we take Lucy and her partner, matt, and they're currently, you know, together in a relationship.
• 5:33
  Speaker 1: They've got a mortgage and, for instance, lucy wants cover and Matt doesn't, and Lucy thinks that it's very important for Matt to be covered?
• 5:42
  Speaker 1: Can she get insurance on Matt?
• 5:46
  Speaker 2: No, no, no, not without a purpose?
• 5:50
  Speaker 2: No, he needs to.
• 5:51
  Speaker 2: When you apply, it has to be the life insured that has to apply right and has to sign off on it all.
• 5:55
  Speaker 2: So pretty much no.
• 5:58
  Speaker 1: So she can't force him to get it.
• 6:00
  Speaker 2: No, we can look at explaining that even if they covered half of their mortgage repayments each, and he might be more open to it, because if cost is the reason he doesn't want to do it, um, but no, she can't do it for him okay because, yeah, matt is stingy, he doesn't want to pay for it.
• 6:22
  Speaker 1: But what matt thinks he's got is he's got an apartment and it's got body corp and matt thinks that the body corp will cover them if something happens, because he read somewhere in the fine print that it's got landlord protection and it's currently tenanted out.
• 6:39
  Speaker 1: So he read somewhere that's got landlord protection and it will cover them.
• 6:42
  Speaker 1: Well, in my opinion again, this is not a financial advice, guys, we're just giving you case studies here In my opinion, the body corp normally does not cover income or mortgage protection.
• 6:55
  Speaker 1: In a way Like if you lost your tenants because the tenants moved out and you can't find the new ones, normally they wouldn't pay.
• 7:01
  Speaker 2: No, they don't.
• 7:02
  Speaker 2: But then I mean mortgage and income protection.
• 7:04
  Speaker 2: Don't either Exactly, but people think if they're reading that type of thing and, like you said, they've got their body corp and they're reading through that, they type of thing and, like you said, like they've got their body corp and they're reading through that, they could assume that it could be you've lost your renters and then you go off work and you're sick.
• 7:22
  Speaker 2: They might think that then the body corp one would cover it like say they've lost their renters, the home owners can no longer work as well, worst case scenario, so they can't cover the rent on their rental.
• 7:36
  Speaker 2: I think people would look at that and they would think oh well, I've got that lender protection, surely that would cover me, but it doesn't.
• 7:40
  Speaker 2: But then, on the other hand, with mortgage and income protection, that doesn't cover your rentals either.
• 7:46
  Speaker 2: So there's a lot of different factors, and that's when other types of cover can come into play as well, like if you've got a trauma cover and you can use some of that lump sum to help with your rental properties or whatever the situation is.
• 8:00
  Speaker 1: Yeah, and I always think back of those, my clients that didn't take the cover and he did get diagnosed with that cancer and they had to sell one of their properties.
• 8:08
  Speaker 1: And I just keep thinking, if only he had the trauma cover that would have paid for that period while he's getting treated, because he's well now, like he's absolutely bit the cancer and he's gone back to work and he's fine now.
• 8:20
  Speaker 1: And only if they had that trauma cover they would have just carried out whatever they needed.
• 8:27
  Speaker 1: You know, going through the storm of the financial burden, and they would have still kept that property.
• 8:34
  Speaker 2: And how far has that put them back now, like with their plan?
• 8:36
  Speaker 2: Obviously they've worked hard to get those investment properties having to do that.
• 8:40
  Speaker 2: And people say, like you know, I could apply for hardship with my KiwiSaver.
• 8:43
  Speaker 2: I mean you can, but then you get well again and your KiwiSaver's gone.
• 8:47
  Speaker 2: What's going to happen at retirement?
• 8:50
  Speaker 1: Exactly, exactly.
• 8:50
  Speaker 1: It's having that foresight Awesome.
• 8:52
  Speaker 1: So we've covered today.
• 8:52
  Speaker 1: There's some misconceptions around income and mortgage protection.
• 8:55
  Speaker 1: Is there anything else that you wanted to add around the misconception side?
• 9:00
  Speaker 2: I think there's the ACC side of things again with mortgage and income protection, because people do think ACC will cover everything.
• 9:08
  Speaker 2: I think we've talked about it before anyway.
• 9:10
  Speaker 2: But ACC is injury Mortgage.
• 9:14
  Speaker 2: Income protection will cover illness and injury Mortgage protection will cover.
• 9:20
  Speaker 2: You get an ACC payout for injury and you will get a mortgage payout as well.
• 9:25
  Speaker 2: Income protection is offset, which is again why we would look at mortgage protection and rent protection first, because if you end up being off for an injury, you'll actually get both yeah, and case in point, I had a young man last year quoted him some insurances and part of it was mortgage protection.
• 9:44
  Speaker 1: And you know, and I said to him look, you need it because you're getting this big mortgage.
• 9:48
  Speaker 1: If something happens to you and the chances are you will probably get injured because you work in a heavy labor industry and unfortunately he didn't proceed at that time and fast forward.
• 10:01
  Speaker 1: Six months later he did get injury.
• 10:03
  Speaker 1: He couldn't work for a period of time.
• 10:05
  Speaker 1: He still can't work and he rang me the other day and he said I wish I took that insurance.
• 10:10
  Speaker 1: And he's young, he's only in his 30s, you know, and now he's struggling to pay his mortgage.
• 10:15
  Speaker 1: He had to take mortgage holidays and stuff like that.
• 10:18
  Speaker 1: So the stress is absolutely enormous, you know, and I know it costs money.
• 10:23
  Speaker 1: Everything costs money these days, but when you look at the cost of not having that insurance and now struggling and he's scared that he'll lose his house now you know, and now we're trying to find other ways for him to keep a roof over his head and it just really breaks my heart when there are options to help people and they're not taking them.
• 10:46
  Speaker 2: Yeah, and, like you said, I mean it is a factor and especially for first-home buyers, when they've worked really hard to get this house, adding that extra type of debt or adding money to the budget for income protection or mortgage protection does scare them.
• 11:02
  Speaker 2: But they've worked really hard for that house and you don't want to lose it after all that work.
• 11:08
  Speaker 1: In my opinion, you can cut back on those takeaways and booze and coffee and coffees and pay for that insurance.
• 11:16
  Speaker 1: I sound really rough and I'm stern about it, but this is important because I feel like, you know, we don't want to find people on the street and we don't want to see people struggling and selling their houses and coming away with a loss.
• 11:29
  Speaker 1: Exactly, yeah, especially in the market that we're in right now.
• 11:33
  Speaker 1: Right, if they bought a house two years ago at a peak, now they have to sell it, because people often say, oh well, if something happens to me, I'll sell my house.
• 11:40
  Speaker 2: But then they're also desperate to sell it, so they'll take a lower offer as well.
• 11:47
  Speaker 1: Yeah, and then you walk away owing more money.
• 11:50
  Speaker 1: And dad, do you really want to do that?
• 11:51
  Speaker 2: and if you've got a whole family moving in with your parents as well, like you've got, say, you've got a few kids, yeah, it's a massive thing, yeah.
• 11:58
  Speaker 2: And then even then you've still got monthly expenses.
• 12:01
  Speaker 2: Like even if for some reason you were able to sell the house, if you've lost your deposit, you've got nothing in the bank again.
• 12:07
  Speaker 2: You've still got other monthly expenses.
• 12:10
  Speaker 2: You can't rely on your parents to cover, especially a whole family, all the expenses.
• 12:15
  Speaker 1: And sometimes we see that right, Like I often help clients from all walks of life, and recently we've had a whole wave of clients that are in their fifties and sixties and they're starting over again because something would have happened to them in the past and they would have lost their houses due to various reasons illness, separations, et cetera.
• 12:32
  Speaker 1: So you don't want to be, you know, in that position where you're just starting out a whole new life again at the age of 50 or 60 and having a 30-year mortgage on top of it.
• 12:42
  Speaker 2: And then, of course, if something happens again, I mean, you would hope not, but do you have family to move in?
• 12:48
  Speaker 2: Not to be dark, but are your parents still around to help?
• 12:51
  Speaker 1: you.
• 12:52
  Speaker 2: You're going to move in with your children Rebecca, yeah, that's the thing, right Like yeah it's just, there's so many factors, and I mean, like we've said numerous times, cost is always a factor, but that's when we look at different options, like with wait periods or benefit periods, or even if you're a part you know, even if there's two of you, if you can't cover your whole mortgage repayments, each even covering part of them, because the other person can still work there's a lot of factors that we can look into to make it as affordable as possible.
• 13:22
  Speaker 1: Exactly, and you and I are going to have a webinar in about a month's time, are we?
• 13:26
  Speaker 1: Yes, we are.
• 13:29
  Speaker 1: I think it's scheduled in September, early September Rebecca and I are running a webinar around insurances, so if you'd like to register, please comment or send us a message and we'll send you a link.
• 13:39
  Speaker 1: And thank you, rebecca.
• 13:41
  Speaker 1: Thank you and I'll see you next time.