ACC, Income Protection and the best options for the self employed

Occasionally I hear of people who misunderstand the role ACC plays in New Zealand. ACC states it ‘helps prevent injuries and get New Zealanders and visitors back to everyday life if they’ve had an accident’.

 

In terms of a Disability Benefit ACC provides up to 80% of your pre-disability income (up to the maximum $101,029 p.a. at time of printing) for accepted accident claims that leave you unable to work.  The key point here is they only cover accidents; to the best of my knowledge ACC has never covered illness not brought on by an accident, which is actually more likely to leave you unable to work long term.

Could you survive financially without your income? If the answer is no, then you should consider having Income Protection Cover as ACC will not pay you a benefit if you are unable to work due to an illness.

An employee in New Zealand will automatically have ACC cover (this is paid through your PAYE and you have no choice in this) and will choose to have Income Protection Cover to cover illnesses through an insurance company.

If you are an employee without Income Protection Cover you may want to consider both the potential exposure you have if you contract an illness that inhibits you from working, but also if you are a highly paid employee, whether or not ACC’s maximum disability benefit levels are sufficient to cover your expenses.

Different options for the self-employed

For the self-employed (sole traders and shareholder employees who take drawings rather than a PAYE Salary) there is a different option - the opportunity to change from the standard ACC Cover.

ACC Cover Plus (Self-employed) and ACC Workplace Cover (Shareholder Employees) are the standard ACC cover products. In the event of an accident that has left you unable to work both require you to prove your earnings and the loss of income you have sustained.

ACC Cover Plus Extra is the alternative cover a self-employed person can choose. This has an agreed benefit level meaning no proof of earnings is needed at claim time and you will pay levies based on this agreed benefit, not a benefit you hope to be able to prove at a future date. This certainty around future payments can be a great peace of mind and not having to prove earnings relieves you of some time involved in paperwork.

Another advantage of Cover Plus Extra is that you can choose the amount of the benefit level (within reason).

Dialling Down Your ACC

Many self-employed people have made the decision to opt into ACC Cover Plus Extra and have dialled down their benefit level in order to reduce their ACC costs. Moving to a lower benefit level can provide significant savings in ACC levies, particularly for job classes that are rated as higher risk such as builders, plumbers etc. The minimum disability benefit level at time of printing is $26,208pa. 

However there is risk in dialling down the disability benefit to this minimum as it would obviously leave most people with insufficient funds to cover their living expenses while on claim.

Many have found that a combination of ACC and Income Protection gives them the best value and have put in place full Income Protection (which will pay 75% of declared earnings to age 65).  The cost is often fully covered by the savings made on their ACC levies – in this case they are now covered for both accidents and illnesses for their working life, without additional cost.

One thing is imperative if you take this action. Not all Income Protection Policies work in the same way. You must have the correct type and to an appropriate level. It must be a policy that will:

1. top up any ACC Claim,
2. provide an appropriate benefit claim amount,
3. have a benefit period payable through to age 65, in case you are left unable to ever work again. 

Unfortunately we come across many cases where a client has been advised to dial down their ACC benefit, but the correct Income Protection cover has not been instituted (i.e. cover with only a one or two year benefit), meaning there is still significant exposure for this person of which they may not be aware.

If you are self-employed and interested in changing your ACC to an agreed benefit, potentially dialling this and would like to know more, or, have done this but are unsure whether it has been done correctly, give me a call as I am happy to review this for you.