If you're a builder, electrician, plumber or any other type of tradesperson, there are a few things you need to consider before investing in Income Protection or Mortgage Repayment insurance.
Firstly, it's essential to know which insurance cover works well with ACC. Most personal income protection covers are offset with ACC related claims. This means if you have an accident or injury that prevents you from working and ACC is covering 80% (or some) of your gross income, your insurer may not be entitled to pay you anything. Thankfully you can easily avoid this scenario with the right insurance advice.
Typically, we advise tradespeople to consider mortgage repayment cover over conventional income protection, as mortgage repayment cover pays on top of anything you receive from ACC.
If you're self-employed, you also may want to consider a lesser-known - but very effective - type of income cover contract called loss of earnings.
The level of cover you can apply for
> Conventional income protection cover can cover up to 75% of your gross income and is liable for tax.
> Mortgage repayment cover can cover up to 45% of your gross income and isn't liable for tax.
> Loss of earnings cover can cover up to 75% of your gross income and is liable for tax.
> Conventional income protection is offset with the benefit you receive from ACC.
> Mortgage repayment cover is not offset by the benefit you receive from ACC.
> Loss of earnings cover is partially offset by the benefit you receive from ACC.
Other aspects to consider
Understand your wait period and how it could impact you at claim time.
Your wait period can be 4, 8, or 13 weeks. Talk to your insurance adviser and do a budget before locking in your wait period to ensure you select the most suitable option. If you have a solid emergency fund, you may be able to push your wait period out, resulting in a lower premium.
Typically, most income protection and mortgage repayment cover costs are not considered a business expense. However, there are some exceptions, such as the Indemnity or Loss of Earnings contracts. The general rule of thumb is; if the benefit you receive at claim time is liable for tax, then the cost of that policy could be considered tax-deductible.
Know your payment period and how it could impact you if you're unable to work long-term.
Your payment period is how long the insurer will pay you in the event of a claim. It could be 1, 2, or 5 years, or to age 65. Reputable life insurers pay to age 65 – with inflation adjustments along the way – to ensure their customers are sufficiently covered if permanent disablement occurs. Consider how a stroke, motor vehicle accident, or any major injury that prevents you from going back on the tools indefinitely could affect your lifestyle. Be aware that most bank income protection or mortgage repayment options only cover their customers for one or two years.
Include a specific injuries cover
Specific injury cover is a must-have for tradespeople. It can be a standalone option or built into your income protection, but it's only available from a handful of reputable insurers based on the high risk of fractures for tradespeople. Regardless of your wait period or ACC entitlements, a specified injuries benefit will pay a lump sum for an injury like a break or fracture - irrespective of your ability to work. Check out the Cigna Specific Injury Cover overview for more information.
Indemnity or Agreed Value - what's the difference?
Indemnity income protection contracts are financially assessed at claim time, whereas agreed value income protection contracts are assessed at application time. To create peace of mind and minimise stress at claim time, always opt for the agreed value option wherever possible.
Guarantee a paid claim
Eliminate the chance of medical non-disclosure by adding your medical notes and ACC claims history to your application – your future self will thank you for it.
Recent statistics show most New Zealanders are cancelling their Income Protection covers at age 46. If you need your Income Protection cover long-term, speak with your adviser about the viability of level premium cover.
Self-employed ACC cover – ACC CoverPlus Extra
If you work for yourself, you have the option of setting up ACC CoverPlus Extra. ACC CoverPlus Extra is free and easy to set up. It gives you control of your annual ACC levy and how much you're covered for if you can't work from an accident or injury. It's much easier to use at claim time than the default ACC disability cover. You also have the option of reducing your level of ACC cover to reduce your ACC costs if you have effective Income Protection in place. The loss of earnings product mentioned above works particularly well for this type of arrangement.
Key person business disability cover
If you're a business owner, you'll want to weigh up the financial impact of your business if you or your key staff are down and out for an extended period. Covering your key people protects your business.
If you or another key team member cannot work due to an accident or illness after the selected wait period, a monthly amount is paid to the business. You can use the funds to hire a contractor, get a pending contract finalised, cover any ongoing expenses like workshop and lease payments, or minimise your loss of turnover.
Not sure if you're covered correctly or if you've received the right Income Protection advice? Give us a call on 0800 346 765 or send us a message, and we'll help you find the right cover.
The opinions conveyed in this article are for general educational purposes only to provide information about the financial services industry.
This information is not intended to provide specific advice or recommendations for any particular insurance, home loan, or investment product. You should not use this article to make any financial decisions, as we cannot assess your situation without thorough consultation. We highly recommend seeking professional advice from one of our qualified financial advisers. Get in touch on 0800 346 765 or email firstname.lastname@example.org.