Third of households can't pay bills after 3 weeks' illness

In New Zealand serious illness is 2.6 more times more likely to strike than a serious accident putting an earner off work for six months or more.

The accident victim will get 80% of income from Accident Compensation. The illness victim without income protection will have their household income means tested before they are eligible for a sickness benefit. A couple with or without children on the M tax rate will have to fall back on a sickness benefit paying about $341.60 a week.

Most two-income families have a second earner whose income would preclude them from receiving a sickness benefit.

Only about 15% will have income protection insurance, whereas 100% have coverage for accident through ACC.

Every seventh home with an income earner can tell a story of the main earner falling seriously ill and being off work for six months or more during the past five years, according to new research.

On average, here is what will most likely happen at households out across New Zealand after annual and sick leave and savings run out where there is no income protection and serious illness puts the income earner off work for six months or more, according to new research …

WITHIN TWO WEEKS

A third of households would not be able to pay their bills.

WITHIN FOUR WEEKS

55% of households would be unable to pay all their expenses and maintain their lifestyle

Only 20% of households would be able to cope for more than 12 months with paying their household expenses and maintaining their lifestyle if a serious illness event that resulted in the primary income earner being unable to work.

Nearly a million households (972,700) with an annual income above $20,000 do not have income protection insurance. Nearly 15,000 of those families will experience an illness each year which sees the main income earner off work for more than six months.

THE INCOME GAP

The extra income (take home pay) household and families need to maintain their current standard of living if the main income earner became seriously ill tomorrow and was unable to work for three months or more is $652 a week.

Things are grimmer for some:

• People earning $50,001 to $100,000 required 43% more additional income than people earning up to $50,000.
• People up to 44 years of age required 48% more additional income than people 45 and over.
• People with a mortgage required 47% more additional income than people who rent.
• Households with children required 37% more additional income than households without children.
• Every household where serious illness to the primary income earner occurs and where it is necessary for that person to receive a benefit is likely to find that the income available is lower than the average needed to maintain the household lifestyle.

SO WHAT HAPPENS?

Interviews with 3,234 adults across New Zealand in September and October, 2012, reveal the extent of hardship suffered when serious illness strikes: 

Respondents to the Horizon Research Serious Illness Survey poured out more than 52,000 words to describe what happened to them when the main income earner fell ill and was off for six months or more.

EXTREME HARDSHIP, REPORTED IN THEIR OWN WORDS

Many described it as a “huge struggle”, and “extreme hardship” resulting in an “enormous reduction in the standard of living”, bringing with it “mega stress loads”.

For some, this was aggravated by the need to also meet higher health costs.

“It was the worst time ever. No-one helped apart from our families,” one respondent said.

Many describe cutting out all luxuries, including buying clothes and living on cheaper food, one saying only one meal a day was now being served.

Homes, housing deposits and savings were lost and people had to leave rental homes to move back with elderly parents. One family who did this said their teenagers were also sent to work. Younger people reported having to drop out of university and move home.

One self-employed franchise owner had to sell his business, could not later find other work and finally went bankrupt.

Others describe having to “depend on food parcels and grovelling to WINZ (Work and Income New Zealand)”.

Others sold furniture, “maxed credit cards” and one household reported having the power cut off. Their family paid to have it turned back on – but they still have an unpaid rates bill.

In another case, “workmates took up a collection to pay for a supermarket visit”.

Another, who suffered cancer, returned to work early to try and fill the income gap and “help the family survive” – but this resulted in further complications and a new illness.

One said: “It was the worst time of my life. Had to move home to my parents. Killed my career. I am still suffering five years later.”

Another said: “It was a vulnerable feeling that lasted well beyond the limitations of the illness.”

Kiwis also most commonly describe what they think will happen to them if the main income earner should fall seriously ill.

“Chaos”, “stuffed”, “homeless”, “bankrupt”, “complete poverty”, “scary” are some of the comments used, with one saying: “I don’t want to think about it”.

Download the full Horizon Research survey report here.

ASSOCIATED MEDIA RELEASES AND REPORTS:

Under Insurance Project reports and media releases, available at www.fsc.org.nz, include:

• Media release: Main project findings overall: New research finds New Zealanders under-insured by $650 billion.
• Media release: Serious illness: most can’t pay rent, mortgage within three months.
• Media Release: Victims of serious illness plunge quickly into serious financial trouble.
• Media release: Case studies: the difference income protection insurance makes.
• The Vulnerable Middle: The impact of serious illness on New Zealand.
• Summary Report The People Insurance Gap – Exploring Underinsurance in New Zealand.
• Massey University Under Insurance Report
• Horizon Research Serious Illness and  Income Vulnerability survey (October 2012)