The tradies guide to Income Protection
If you’re a tradesperson, there are a few things you need to consider before investing in Income Protection or Mortgage Repayment insurance.
Firstly, it’s important to know what 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% of your gross income, your insurer may not be entitled to pay you anything. This is a major pain point for many Kiwis but it can easily be avoided with the right 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 for a disability claim.
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.
Income Protection cover VS Mortgage Repayment cover
The level of cover you can apply for
> Income Protection cover can cover up to 75% of your gross income as a taxed benefit.
> Mortgage Repayment cover can cover up to 45% of your gross income as a tax-free benefit.
> Loss of Earnings cover can cover up to 75% of your gross income as a taxed benefit.
> 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
This could either 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.
Premium tax deductibility
Typically, most Income Protection and Mortgage Repayment cover costs are not considered a business expense. 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
This could either be 1, 2, 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 (think stroke or major back injury that prevent you from going back on the tools).
Be aware most bank Income Protection or Mortgage Repayment covers only cover their customers for one or two years.
Include a specified injuries benefit
Based on the high risk of fractures for tradespeople, this is a must-have and is only available from a handful of reputable insurers. Regardless of your wait period or anything received from ACC, a specified injuries benefit will pay a lump sum for a specific injury irrespective of your ability to work.
Here’s the specific injury benefit list as per the Fidelity Life Mortgage Repayment cover:
* Fracture of skull or jaw: 30 days
* Fracture of skull or jaw: 30 days
* Fracture of forearm or collarbone: 30 days
* Fracture of wrist: 45 days
* Fracture of upper arm, shoulder bone, or elbow: 60 days
* Fracture of vertebrae: 60 days
* Fracture of kneecap: 60 days
* Fracture of ankle or heel: 60 days
* Fracture of tibia or fibula: 60 days
* Fracture of leg above the knee or pelvis: 90 days
* Loss of thumb and index finger of the same hand: 6 months
* Loss of one foot, one hand, or sight in one eye: 12 months
* Loss of one leg or arm: 18 months
* Loss of any combination of two of the following: a hand, a foot, sight in one eye: 24 months
* Loss of both feet, both hands, or sight of both eyes: 24 months
* Paralysis (Diplegia, Hemiplegia, Paraplegia, or Quadriplegia): 60 months
Indemnity or Agreed Value
Indemnity Income Protection cover is financially assessed at claim time. Agreed Value Income Protection cover is financially assessed at application time. To create peace of mind and minimise stress, where 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 – 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, ask your adviser for information on level premium Income Protection cover.
Self-employed ACC cover – ACC CoverPlus Extra
If you work for yourself you also have the option of setting up ACC CoverPlus Extra. ACC CoverPlus Extra is free and easy to set up and 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 is 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 on the basis you have effective Income Protection in place. The Loss of Earnings product mentioned above works particularly well for this type of arrangement.
Not sure if you’re covered correctly or 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.
This article contains general information and does not take into account your individual requirements. Before making any changes to your insurance portfolio, please seek advice from a professional insurance adviser.