Being self-employed or a business owner means you are in charge of your earnings, no one else is responsible except of course any employees that work underneath you. So you earn what you kill so to speak. If you stay at home sick or can’t work due to being injured then you are unlikely to be earning yourself money at that time. What can you do to protect this risk, you can put cash in a rainy day fund, have assets you can sell or pay a company a premium to take on board some of the risk themselves. Redundancy is not really a risk for the self-employed as they are a master of their own destiny and you cannot get insurance to cover this risk.
However the loss of income due to injury or illness is a major risk to a business owner or self-employed person. Often their home and business has personal guarantees or debt held against it because you are in business for yourself. With this comes some bigger issues than if you worked for someone else. If you stopped work and weren’t generating an income then potentially you are putting these assets at risk. For injury this ACC which kicks in after one week and covers 80% of your income up to a maximum of $94,000 p.a. – however if you earn more income than this then ACC won’t cover this extra income.
Other issues to be aware of is if you split your income, for example you earn $100,000 p.a. but split this between you and your partner. ACC will only pay our injury cover if you get injured for 80% of $50,000. Likewise ACC does not recognise drawings or other fringe benefits you draw down being self-employed. Private income protection cover does take this into account and at the time of underwriting this information is supplied to the insurance company so you know what you are going to get paid in the event of a claim.
ACC Cover plus means that in the event of an injury claim you need to provide evidence of your last 52 weeks earnings and then ACC will pay 80% of this. If work has been slow or you have been on a long holiday and your earnings are down this is just tough luck. If you switched to ACC Cover Plus extra then you get an agreed level of cover from ACC and you do not need to prove earnings.
Private insurance cover either pays you an agreed level of cover or lets you provide the best consecutive 52 weeks of the last three years. If you get sick and can’t work then ACC won’t provide cover and you will be relying on WINZ which could give you around $300 per week – however if you have a partner who is earning income then this is assessed. This can save you having to get out a personal loan to cover such a situation.
Life taxes, income protection is a necessary evil for self-employed or business owners to provide income cover in the event of getting sick but also if you get injured. You can structure your private cover with your ACC cover so they don’t offset against each other. You can get ACC Cover plus extra to an agreed level be it the minimum or a higher amount, the put in place mortgage protection which does not offset against an ACC claim, and lastly put in income protection benefit over the top. Combined with a specified injury benefit in your income protection insurance in New Zealand then you, your business and your family are protected and would be able to continue your lives in the lifestyle you have been accustomed to.