Huge Vulunerability to Sickness Remains

11 March 2013

Life Industry Claims Paid And Premium Income Both Growing But Huge Vulunerability to Sickness Remains

The people insurance business is recovering strongly from the recession but a huge income protection coverage gap remains. Annual premium income is expected to reach $2 billion in the next quarter on current trends.

The amount of money circulating in the New Zealand economy from insurance pay-outs has grown by more than $230 million over the last three years, the Financial Service Council’s quarterly statistics reveal.

In the 12 months to December 2012 total personal insurance pay-outs for life insurance and income replacement insurance were $1.19 billion, a 16.6 percent increase, worth an extra $169 million compared to the December 2011 year when the industry pay-outs went through the $1 billion mark for the first time. Premiums in force also rose by $120 million during the December year to a total of $1.96 billion.

While the latest quarterly statistics for the life insurance industry show growth in premium income and an increasing level of claims paid, New Zealanders remain seriously under-insured for loss of income from sickness.

The chief executive of the Financial Services Council Peter Neilson said it was good to see growth back in the life insurance industry, but a two year research project by the FSC shows only 15 percent of households have income protection insurance, compared to 100 percent ACC coverage that guarantees the victim will get 80 percent of their income following an accident.

“Each year 15,000 primary income earners fall seriously ill and are unable to work for six months or more. For a person on the M tax rate, the sickness benefit is $341.60 a week and this is means tested. If another person from the household is earning income, many families find they are too rich to get a household income tested sickness benefit, but too poor to pay the rent, mortgage or food bills.

Mr Neilson says serious illness is 2.6 more times likely to strike than a serious accident where the primary income earner is off work for six months or more.

“There are 972,000 New Zealand households that have no income protection insurance and are at risk of a serious illness plunging them quickly into serious financial trouble. Just four weeks after having used up their annual and sick leave, most New Zealand families could not pay the mortgage or rent.

“This is creating a huge vulnerability gap and enormous personal and emotional turmoil for 288 New Zealand families every week,” Mr Neilson said. People who think they might be vulnerable should ask their adviser, bank or broker about income protection insurance.

The FSC Quarterly Statistics are available on the FSC website.
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