The tradie’s guide to income protection
If you are a builder, electrician, plumber, plasterer or any other tradesperson, there are a few things to consider before committing to income protection or mortgage repayment insurance.
The first is how the cover works with ACC. Most personal income protection is offset against ACC. If an accident stops you working and ACC covers 80%, or part, of your gross income, your insurer may reduce what it pays you or pay nothing at all. The right advice avoids that.
We typically advise tradespeople to consider mortgage repayment cover alongside or instead of conventional income protection, because mortgage repayment cover pays on top of anything you receive from ACC. If you are self employed, loss of earnings cover is a lesser known but very effective option.
Cover levels and how each works with ACC
The three main types of income cover differ in how much you can insure and how they interact with ACC.
| Cover type | Maximum cover | How it works with ACC |
|---|---|---|
| Conventional income protection | Up to 75% of gross income | Offset by any ACC payments |
| Mortgage repayment cover | Up to 45% of gross income | Not offset. Pays on top of ACC |
| Loss of earnings cover | Up to 75% of gross income | Partially offset by ACC payments |
Cover limits vary by insurer and are subject to underwriting.
Choosing your wait period
Your wait period is how long you must be off work before payments start. It is usually 4, 8 or 13 weeks.
If you have a solid emergency fund, a longer wait period lowers your premium. Talk to your adviser and check your budget before you choose.
Tax deductibility
Most income protection and mortgage repayment premiums are not tax deductible. Indemnity and loss of earnings contracts can be the exception.
Rule of thumb: if the benefit you receive at claim time is taxable, the premium is generally tax deductible. Confirm your position with your accountant.
Know your payment period
Your payment period is how long the insurer pays you during a claim. It can be one, two or five years, or to age 65. Reputable insurers offer cover to age 65, with inflation adjustments along the way, so you are covered if a long term or permanent disability occurs.
Think about how a stroke, a serious head injury, a car accident or any illness or injury that keeps you off the tools for good would affect your lifestyle. Most bank income protection and mortgage repayment options only pay for one or two years.
Add specific injury cover
Specific injury cover is a must have for tradespeople. It can be a standalone policy or built into your income protection, and only a handful of insurers offer it.
Regardless of your wait period or ACC entitlements, a specific injury benefit pays a lump sum for injuries such as a break or fracture, whether or not you can keep working.
Indemnity or agreed value
Indemnity: your income is assessed at claim time.
Agreed value: your income is assessed when you apply.
Wherever possible, choose agreed value. It gives certainty about what you will receive and reduces stress at claim time.
Reduce the risk of a declined claim
Disclose your medical notes and ACC claims history in full when you apply. It removes the risk of a non disclosure issue when you need to claim.
Long term affordability
Many New Zealanders cancel their income protection around age 46 as premiums rise. If you need cover for the long term, ask your adviser about level premiums.
Key person cover for business owners
If you own a business, think about the financial impact if you or a key staff member is off work for an extended period.
Key person disability cover pays a monthly amount to the business after the wait period. You can use it to hire a contractor, finish a pending contract, cover ongoing costs such as workshop leases, or reduce your loss of turnover.
How Finsol can help
We look at how your income cover works with ACC, your business and your budget, and make sure the policy will pay when you need it.
Call us on 0800 346 765 or book a free consultation.
Finsol is a financial advisory business founded in Hawke’s Bay in 2010, looking after more than 6,000 clients across New Zealand. This article is general information only and does not take your personal circumstances into account. Cover terms vary by insurer and policy wording applies.
