If you're a builder, electrician, plumber, plasterer, or any other type of tradesperson, you will want to consider a few things before committing to Income Protection or Mortgage Repayment insurance.
Firstly, knowing which income protection contracts work well with ACC is essential. Most personal income protection covers are 'offset' with ACC-related claims - this means if you suffer an accident or injury that prevents you from working, and ACC is covering 80%, or some, of your gross income, your insurer may reduce what they pay you, or not pay you at all. Thankfully, you can avoid this unwanted 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 may want to consider a lesser-known - but very effective - type of income cover contract called Loss of Earnings.
What level of cover can you apply for?
Conventional income protection cover can cover up to 75% of your gross income.
Mortgage repayment cover can cover up to 45% of your gross income.
Loss of earnings cover can cover up to 75% of your gross income.
Which income protection contracts work best with ACC?
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.
Understanding 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 assess your budget before locking in your wait period to ensure you select the most suitable option. If you have a decent amount of cash set aside in your emergency fund, you may be able to push your wait period out, resulting in a lower premium.
Most income protection and mortgage repayment cover premiums are not considered a business expense. However, exceptions exist, 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 premium paid for that policy would be considered tax-deductible.
Know your payment period
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 or long-term disablement occurs. Consider how a stroke, major head trauma, motor vehicle accident, or any significant injury or illness 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 Injury 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. Regardless of your wait period or ACC entitlements, a specific injuries benefit will pay a lump sum for an injury like a break or fracture - irrespective of your ability to work. Check out Cigna's 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, wherever possible, always opt for the agreed value option
Guarantee a paid claim
Eliminate the chance of medical non-disclosure by adding your medical notes and ACC claims history to your application – if you need to make a claim, 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 and it's much easier to use at claim time than the default ACC disability contract. 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.
If you want to protect your income or review your current plan to ensure it is optimal, message us here or call our office on 0800 346 765.
This article is for informational purposes only and should not be considered as financial advice. It is always recommended to consult with a qualified financial professional before making any financial decisions based on your individual circumstances.