Income protection for Engineers

Income protection for Engineers in NZ: How it works and what it covers

New Zealand has an estimated 77,000 engineers, around 3% of the workforce, and more than 23,000 of them are members of Engineering New Zealand. 

Engineering New Zealand puts the median total remuneration for its members at around $145,000 a year, which adds up to one of the biggest financial assets an engineer has over a career. 

Whether you design bridges in Christchurch, power systems in Hamilton or software in Auckland, that income depends on you being well enough to work. So it’s worth thinking about what would happen to it if illness or injury kept you off the job for months. 

Income protection insurance is designed to pay you a regular amount to replace part of your income if illness or injury stops you working. 

Getting income protection cover is worth considering at every stage of an engineering career, whether you're employed, contracting or running your own consultancy. It works alongside ACC and any cover through your employer, rather than replacing either.

With the $145,000 median salary putting engineers in the top 10% of income earners in the country, it might be better to think ‘what would a top 10% earner do with their cover’ rather than what the average Kiwi is doing. 

In this article, we’ll go through what income protection is, how it works, and then why it’s a relevant option for engineers across disciplines, and across the country to consider in their financial affairs.

What is income protection and how does it work?

Your income is the input everything else runs on: the mortgage, family costs and your savings all depend on it.

Income protection is insurance on that input. If illness or injury means you can't work at all, or can only work reduced hours (what policies call total or partial disability), it could pay a monthly benefit while you recover.

Here's how it works, step by step, with an adviser alongside you:

1. Talk to an adviser. 

   • A PPS accredited adviser helps you choose cover options, how much the policy can pay each month, how long you'd wait before payments start and how long payments could last, then helps you to set up the cover.
     
     

2. You pay premiums.

   • The cost depends on things like your age, health and smoking status, and on the choices you made in step one. A longer waiting period usually means a lower premium.
     
     

3. Illness or injury stops you working, or limits the hours you can work.
   
   

4. Making a claim. 

   • Your adviser can help you through it. Once your claim is accepted and the waiting period has passed, monthly payments start if you still can't work fully.
     
     

5. Post claim

   • Payments continue while illness or injury keeps you from working fully, up to the end of the payment term you chose.
     
     

The policy wording on our insurance page sets out exactly how cover works, including what counts as total and partial disability.

You've put years into qualifying and building experience. For many engineers, the income that comes from it over the rest of a career is their biggest financial asset.

Isn't professional indemnity insurance enough?

No, because it does a different job.

Professional indemnity insurance protects you or your firm if a client claims they've lost out because of your professional work, such as a design error. It doesn't pay you anything if you can't work.

Income protection looks after your own income.

If illness or injury keeps you off the job for months, professional indemnity cover won't help with your living costs. It's easy to assume you're covered because your firm carries professional indemnity insurance, but it was never designed for that.

Doesn't ACC cover me if I can't work?

Just for accidents. ACC covers personal injuries caused by accidents, so an injury on site or in a car crash would usually be covered. It doesn't cover illness, sickness or conditions related to ageing, and mental health conditions generally aren't covered unless they're linked to an injury ACC already covers.

That leaves a gap.

If cancer or a heart attack keeps you off work, ACC generally won't pay.

When ACC does cover an injury, weekly compensation is generally up to 80% of your earnings before the injury, before tax, up to a weekly maximum. If you're self-employed, it's based on your earnings after expenses from your tax return, which can be lower than you expect.

Does my firm's group cover protect me?

Some engineering firms offer income protection through a group scheme. 

That's a good start, but not every employer offers one, including some large firms, and it's worth knowing what it does before you rely on it.

Questions to ask about cover through your employer:

• How much would it pay, is there a cap, and does it keep up with what you earn now?

• How long would payments last?

• Does it cover illness as well as injury?

• What happens to it if you change firms, go contracting or set up your own consultancy?

Group cover is part of your employment package, so it usually ends when you leave unless there's an option to continue it. A personal policy stays with you as your career moves.

What if I contract or run my own consultancy?

As a contractor or consultancy owner, there's no sick leave or employer scheme behind you.

When you stop working, the income usually stops too.

Self-employed income also tends to move around from year to year, which affects how cover is best set up. 

Income protection broadly comes in two styles:

• Agreed value. The monthly amount (your sum insured) is agreed when you take out the policy, based on your income at the time.
  
  

• Loss of earnings. The amount is worked out when you claim, up to your sum insured, based on what you were earning before you stopped work. With PPS Mutual, that's your best 12 months of earnings from the last three years, which helps if your income goes up and down.
  

Some policies combine the two. Which one fits depends on how steady your income is. This is where good advice counts, and a PPS accredited adviser can help you set up cover that fits.

Consultancy owners also have a second question: what happens to the firm if illness or injury keeps them, or any other key personnel, from working. PPS Mutual's Key Person Protector Cover is designed to help a business replace lost revenue or bring in someone to cover if a key person can't work because of illness or injury.

Where does PPS Mutual fit?

PPS Mutual is a life insurer built for professionals, including engineers. It's a mutual, ultimately owned by the Professional Provident Society Trust for the benefit of its members, and owned and operated in New Zealand.

PPS Mutual's Professionals' Choice Income Protection Cover is designed for professionals and comes in agreed value, loss of earnings and combined versions. As a mutual, PPS allows members to share in its long-term financial success through its Profit Share Benefit.

PPS cover is available through accredited, independent financial advisers. A PPS accredited adviser can also check whether you're eligible.

Frequently asked questions

Can I keep my income protection if I change firms or go contracting?

If you own the policy and it covers you, it typically stays with you when you change firms, go contracting or set up your own consultancy, as long as you keep paying the premiums. Group cover through an employer usually ends when you leave, unless it has an option to continue it, so check its terms before you rely on it.

Can I keep my income protection if I change firms?

If you own the policy and it covers you, it typically stays with you when you change firms, move in-house or start your own practice, as long as you keep paying the premiums. Cover provided through an employer's scheme can end when you leave, unless it has an option to continue it, so check its terms before you rely on it.

Can contracting engineers get income protection?

Yes. Because contract income can change from year to year, the way the cover is set up matters, especially the choice between agreed value and loss of earnings. 

A PPS accredited adviser can explain the options and what fits your income.

Is income protection the same as professional indemnity insurance?

No. Professional indemnity insurance covers claims made against you or your firm over your professional work.

Income protection pays you a monthly benefit to replace part of your income if illness or injury means you can't work, or can only work reduced hours. They protect against different things, so one doesn't replace the other.

Who can get cover with PPS Mutual?

PPS Mutual's insurance is designed for professionals who meet its eligibility criteria, including engineers. Cover is also available to their spouses, dependent children and key business associates, subject to eligibility. Membership is exclusively for professionals. A PPS accredited adviser can confirm whether you're eligible.

If you're an engineer and want to know how income protection could work for you, get in touch to talk to a PPS accredited adviser.

Disclaimer

This article is general information only and is not financial advice. All PPS Mutual cover is subject to the applicable Cover Terms, conditions, exclusions and underwriting. For full details, please refer to the Cover Terms. Information is current as at [date of publication]. PPS Mutual cover is available through accredited, independent financial advisers. Please contact your adviser for further information.