When You Cannot Work And Don’t Have Mortgage Protection Cover
Have you ever thought how you would pay your mortgage or be able to pay your household bills if your income stopped tomorrow?
Most people don’t!
In February 2013 the HorizonPoll Report concluded that each year the primary income earner in 14,980 of the 972,700 households with incomes over $20,000pa will fall seriously ill and be unable to earn for six months or more.
Serious financial difficulty then strikes quickly after sick and annual leave and savings run out with 20% of households which would continue to meet their expenses for 1 week, another 14% would be able to continue for only 2 weeks and after 4-weeks 55% of households would be unable to pay all their expenses and maintain their lifestyle. The report found that only 20% of households would be able to cope for more than 12 months.
How long could you survive?
When You Cannot Work – The Causes
Most people think that the reason they will be unable to work if because of an accident and therefore they would be covered by ACC, but the fact is that an illness causes more people long-term disability – and there is generally no ACC cover for illnesses.
In 2005 the Ministry OF Health published a report on Living with Disability in New Zealand and interestingly the cause of disability
The report stated that disease and illness contributed to 40% of adults with disability or an estimated 251,300 people while the second most common cause was due to accident or injury with 34% or an estimated 212,000 people.
CLICK HERE to read the report.
Getting Financial Assistance
So if you cannot work due to sickness or injury what are the options for getting financial assistance?
Sick Leave Entitlement
Do you know how much sick leave you are entitled to?
Most people understand that sick leave is to be used only when sick or unable to work.
For most employees in New Zealand, there is a minimum provision of five days’ paid sick leave a year after the first six months of continuous employment.
Applying For ACC
Everyone in New Zealand has 24-hour, seven-day-a-week, no-fault comprehensive injury cover through ACC which offers financial compensation for up to 80% of your taxable income. The calculation is based on your taxable income over the last 12-months prior to any injury and the benefit is paid after a 1-week waiting period.
ACC does not cover any illness or stress, hurt feelings, loss of enjoyment or other emotional issues (these may be covered if these are the direct result of a physical injury or sexual abuse) conditions related mainly to ageing or any injuries that come on gradually and are not due to a work task (non-occupational gradual process injuries)
You may also not covered by ACC if you receive any injury while outside of New Zealand.
Apply For A Mortgage Holiday
Most banks will offer a mortgage holiday if you have genuine reason and apply for it.
The maximum period of time for a mortgage holiday is 3-months and while this is definitely a help, it is not going to be ideal if your illness extends beyond a 3-months timeframe.
Sickness Benefit
Before granting a sickness benefit, Work and Income staff need to be satisfied that the person is limited in their capacity to seek, undertake, or be available for full-time employment because of sickness, an injury, pregnancy, or a disability; or losing earnings through sickness, an injury, pregnancy, or a disability because they are not working or they are working at a reduced level.
The sickness benefit is often not going to support you and your family plus your mortgage repayments. It is currently up to a maximum of $384 weekly (gross). CLICK HERE for the list of entitlements.
Accommodation Allowance
Another benefit that may be available is the accommodation allowance but again this is unlikely to pay a mortgage with the maximum allowance being $225 weekly.
CLICK HERE for the list of entitlements.
If you want to ensure that you and your family will be financially prepared in the case that you are unable to work then the best option is to have some private income protection insurance or mortgage protection cover.
Income Protection Cover
Income protection insurance covers you for both accident and illness and your cover is based on your income.
There are some different types of income cover with indemnity being the most common, but the agreed value options offers more certainty at claim time.
Mortgage protection cover would be an agreed value policy with most companies and therefore offers certainty too.
Mortgage Protection Cover
Mortgage protection cover is based on your mortgage repayments not your income.
The main advantages of mortgage protection cover is that the level of cover is easy to establish and prove. Unlike income based insurances a most mortgage protection cover is not offset if you receive any other income like any ACC entitlements and therefore you are able to claim both our mortgage protection cover and any ACC that you may be entitled to.
Partners Life is one company that also has a household expenses cover that can be added to any mortgage protection cover to ensure that you can also pay your other household expenses. With the other companies you could have an income protection policy as well.