In Part I we heard how ACC’s CoverPlusExtra can provide appropriate levels of income cover in the case of accidents for the self-employed, but what about sickness? And is there a better why of protecting your income than just relying on ACC?
Wait, but, doesn’t ACC cover everything?
Although ACC works very well for accidents, it does not cover sickness. Many people end up in hospital or are unable to work due to something other than an accident. As a standard rule, ACC cover is restricted to accidents only at a max of 80 per cent of gross income*.
So ACC cover still leaves a massive financial risk in case you do fall ill. This financial gap should be filled with either self-insurance (having savings set aside for emergencies and loss of income) or paid insurance (where you transfer some of the risk to an insurance company).
But won’t I double up if I also insure with an insurance company?
Yes and no. The good thing about income protection cover through an insurance company is that they can pay out in case of illness and sickness AND in case of an accident. Their definition of not being able to work is not necessarily related to an accident. Income cover is triggered by the fact that the doctor tells you that you should not work, which is vastly different from the ACC’s accident policy.
What sort of advice should I get around this?
To achieve the best possible result for our clients we reduce the ACC coverage to a minimum, and this also reduces levies to the minimum**. This decrease of levies can go towards partially funding the premiums of the insurance.
Here’s a picture of what this might look like for you:
In the original situation there is no cover for illness because ACC only covers accidents. This means you could be paying (up to) $2600p.a. of ACC levies that will only cover you for accidents.
By reducing your ACC standard cover, you’ll reduce your annual levies to around $800-$1000. We can then put the savings on the levies (up to $1800) towards some income insurance, meaning that you’re now covered for sickness as well as accidents (to a max of 75 per cent of income).
Lastly, if you earn over $120,000 NZD gross each year, ACC will not cover you for the amount over $120k. So, if you do rely on a budget surpassing that threshold, you need to cover it with income insurance regardless.
At Velocity Financial we have the expertise and experience to advise what you are covered for, what you’re paying for and what your next steps might be.
If you have any further queries regarding ACC and how to make it work better for you, have a no obligation chat to Alex our in-house insurance expert who has helped many clients get better cover at better rates.
Note: No change should be made on the above advice alone, it is for guidance purposes only.
* This is capped at a maximum, which is currently +-$120,070.
** This is capped at a minimum, which is currently +-$23,712.
Alexander Baredregt 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.