You've filed your annual return, budgeted for provisional tax and are looking forward to your 18/19 financial year when suddenly you receive a little white envelope in the post. ACC have sent you their annual love letter. If you're lucky, and depending on your income and occupation, this will be to the tune of around $2,500 (I have seen significantly higher). Unfortunately, most people forward this onto their accountant and pay it without thinking about what they are getting in return.
If you are self-employed you are most likely covered by default by ACC Cover Plus, which is the standard compulsory cover for those who are self-employed. It gives you compensation for lost earnings up to 80% of your previous year's taxable income. ACC does offers other options for which you can agree on a level of cover, should you suffer an accident.
If you have an accident at the time of claim you will need to prove a financial loss due to your injury to receive compensation. This is an area where many self-employed get into difficulty. If you have an accident and can’t prove your income you would struggle to get ACC payments.
However, it is important to understand that this is only part of the picture. About 67% of events that keep you off work are not accident related, but due to illness.* Let’s look at an example of what type of cover self-employed people can get, and how to make the most of it.
A 30-year old male self-employed physiotherapist earns $120,000 p/a through drawings. If he becomes disabled, ACC will pay him 80% of earnings, or $96,000, but only if the cause of him being off work was an accident. In the event of an illness he receives nothing for his total annual ACC levy of $2,168.44.
If the same client gets personal income protection, he can get cover up to 75% of his taxable income - giving him $90,000 per year. By combining insurance and ACC he has certainty that he’ll be covered, irrespective of the reason he is off work - and his combined premiums for both his personal insurance and ACC would be $1,859.21.
Both ACC cover and personal insurance for those who are self-employed are complex subjects, but there are proven ways to maximise your cover while minimising cost. If you’d like to find out more, contact us on 0800 809 009.
*Stats provided by one of the major insurance providers about their claims experience for income protection.