Surge in insurance against job loss

Economic hard times are driving significantly more New Zealanders to take out income-protection insurance, a new survey reveals.

AIG Life's biennial Life Matters survey of 1000 Kiwis shows that 23 per cent have income-protection insurance, up from just 13 per cent two years ago.

It found a similar rise in trauma and critical illness insurance - 31 per cent of those surveyed have this protection, compared with 15 per cent in 2007 and 9 per cent in 2005.

The findings echo figures from the Investment Savings and Insurance Association showing that premiums collected from risk insurance products increased by 11.4 per cent in the year to March.

Mike Loftus, head of marketing for AIG Life, said New Zealanders had clearly become acutely aware of risk as the economy declined.

He said those surveyed rated redundancy as their major concern at present, ahead of any health risks.

However most insurers did not cover redundancy as part of their income-protection products, but rather as a component of mortgage protection insurance, he said.

This was because redundancy cover could become self-selecting, with those most at risk more likely to take it out.

AIG Life had also seen a rise in small business owners taking out key person insurance, he said.

"If they're unable to continue working in their business, then the business is at risk of falling over, especially with the banks being quite tight on credit."

Ralph Stewart, chief executive of rival insurer AXA, confirmed the flight to income-protection products.

But he also pointed out that most products did not cover redundancy, and in fact usually had a provision whereby the insurance was cancelled if the person was out of work for a certain time.

Concern about unemployment was making people more aware of the issues relating to sustaining their income, but "is that concern best satisfied by buying more income-protection insurance? No".

The products could be complex, with a menu of options such as different stand-down periods and the nature of the medical conditions covered. "Clearly it's a product that needs some advice wrapped around it."

New Zealand Financial Planning adviser Greg Moyle said income-protection insurance should be considered as part of a comprehensive financial plan.

He had seen instances of it being oversold.

"The concern I might have is that people can sometimes be frightened into overinsuring and it can be expensive."

If a person was so sick they could not work, their lifestyle would change dramatically and so therefore would their need for funds.

"How much do you really need, and that needs to be revised every few years as well."

He said people should go for at least a 90-day stand-down period to reduce costs, and look into whether the product was tax deductible.