Insurance is a funny old game. A bit like the saying “Everyone wants to go to heaven, but no one
wants to die”. We want the benefits without the cost.
Here's three benefits as I see it, of the latest income insurance scheme the government is proposing.
1) It includes everybody. Not just those who are in good health. That’s one of the difficulties with personal insurance. Those who need it most (those subject to poor health) can’t buy it, have
exclusions, or pay an extra premium cost.
2) There is no reason why it wouldn’t work in well with existing personal income protection. The proposed new scheme will pay for 6 months. Why not put a 6-month stand down (wait period before the claim starts) on your personal income protection. It will cut the cost down considerably.
The two would dovetail.
3) Lower cost in later years. The cost of the proposed scheme is based on income not age. A big problem with personal income protection is when you get to an age of a more likely claim (ages 50 to say 65) the cost is high. The proposed scheme cost is roughly 3% of income, right through, no matter your age (half paid by the employer, half by the employee). On 70k a year that’s roughly $1050 pa each or $20 a week, each (from what I understand, the self-employed will not pay the redundancy cost of the cover, which will roughly half the cost).
I’m sure there will be reasons why the scheme shouldn’t go ahead. Mostly around cost. However, over the years in dealing with claims for people who can’t work because of illness, I’ve never had one say, “I wonder if I was paying too much in premium”.
Bob Sinclair is the owner and director of Sinclair Solutions