What you need to know about ACC: Part I

ACC is a wonderful institution providing medical and, to some degree, income cover for everyone in New Zealand in case of an accident. Most countries look at our ACC with envy. But how does it work? And does it mean we can skimp on other insurances?

 

Employees pay their ACC levies automatically, as a tag on to PAYE. But if you’re self-employed you are also required to pay ACC levies—something most people are averse to.

 

In general, there are two ways you can deal with this. 

 

The standard option is to pay levies based on your previous year’s liable earnings—ACC will get your income details from the IRD at the end of the year and send you a bill accordingly. This is the default scheme ACC operates under, so most people who are self-employed fall under this category.

 

The other option is to get an agreed-value product called ACC CoverPlus Extra. In this case the cover is based on what you expect to earn. You then pay ACC levies appropriately to that declared income.

 

What is the benefit of one over the other?

 

One of the biggest benefits with ACC CoverPlus Extra is that the amount is predetermined when you apply. If you have an accident and you’re unable to work, you know exactly what pay out you can get.

 

Why is this difference important?

 

This is particularly important if you’re self-employed and have a fluctuating income. Let’s say you don’t have CoverPlus Extra and your previous year wasn’t exactly memorable financially speaking. But this year, while business was going much better, you ended up getting injured. In this case you’ll be paid based on last year’s poor income, which doesn’t reflect your current higher income and also may not meet your current commitments to paying this year’s bills.

 

This is why considering your balance of ACC and other insurance is so important. We can help you decide which option is best for you and provide advice on other income protection and personal insurance.

 

Next time in Part II, We will look at how raising or lowering ACC CoverPlus Extra can fit your financial goals.

 

Alex Barendregt is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.