February 23, 2022
Simon O'Neill
Insurance
All Blogs

What is Social Unemployment Insurance, and do I still need other Income Protection?

 

Eligible kiwis would receive up to 80% of their usual income for six months under a new Social Unemployment Insurance scheme. How will this affect private insurance arrangements?

What is Social Unemployment Insurance?

In a commitment made in Budget 2021 and papers released this month, the NZ Finance Minister announced that there would likely be an introduction of a government-run, ACC-led, Social Unemployment Insurance scheme for New Zealanders, post the 2023 election.

The new scheme would allow eligible Kiwis to receive up to 80% of their usual income for six months (capped at the current ACC rate, currently $1,820 per week) if they lost their job due to no fault of their own, such as illness or redundancy. This amount is on par with what you can receive currently through ACC if you are off work due to an accident.

Eligible kiwis would receive up to 80% of their usual income for six months

This proposed social insurance policy would be funded by a levy paid by both you, and your employer (about 1.39% each), and is similar to how the ACC scheme is funded.

A scheme such as Social Unemployment Insurance would allow workers the financial stability to find the right job for their skills, or to retrain for a new, fulfilling career path, should they suddenly find themselves out of a job.

 

How does this impact my Income Protection/Disability Cover?


A new social insurance scheme such as this will come with some potential implications for Risk Insurance - the Disability Insurance (Income / Mortgage Repayment cover).

As we’ve pointed out in previous blogs and video clips, the disability insurance currently available through most NZ insurance companies provides a monthly benefit, should you be off work due to illness or accident.

One of the key levers that drive the ‘premium’ (i.e., the cost)for disability cover is how long you can wait before you receive this benefit (i.e. The wait period – and the longer you can wait before the benefit kicks in, the cheaper your premiums will be.)

For example, under disability insurance through a private provider, you may choose a wait period of a month before your benefit kicks in.

But you may choose to extend this wait period out to six months, if you are also eligible for Social Unemployment Insurance, and will receive up to 80% of your earnings for six months prior on a government scheme. This would in turn potentially mean cheaper premiums, and the best cover.

Social and Private insurance will have to work in conjunction with each other to provide the best cover for the consumer. And there will be pros and cons for using each. This is a conversation to have (with your Adviser) when, perhaps obviously, we have all the information available and know what we’re playing with. There will be no one-size-fits-all here, and it is going to be an interesting time with potentially more options on the table to pick and chose and fit together for each individual.

About Simon

Hi, I’m Simon a Financial Advisor here at Velocity Financial. I enjoy working with my clients to help demystify all the Mortgage, Insurance and KiwiSaver fine print, and help get them to where they want to be. I am dedicated, thorough and offer professional advice that works for you. I like to help people on their journey and be a trusted person to guide them through really important events in their lives such as the home buying process. I help my clients collaborate with valuers, builders, lawyers and real estate agents to ensure a seamless experience. That satisfaction of reaching the goal with the least amount of stress for my clients is hugely rewarding. I navigate unique scenarios and tailor lending solutions for individual circumstances to save money and time. As a proud father of two and avid supporter of all my children’s endeavours, I know just how precious that time is. On the weekends you’ll also find me mountain biking, surfing, or checking out NZ’s great walks.

 

Disclaimer: O’Neill (FSP534466) is a Financial Adviser with Velocity Financial(FSP95466). No investment decision should be taken based on the information in this blog alone. Please see Simon’s disclosure statement on our website.

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