WHY SHOULD YOU PROTECT YOUR INCOME? By Caro Gatley
There is a myth that ACC will cover you if you get sick or injured. This is not the case and it is simply there as an interim benefit immediately following an accident or injury. Your income protection however, covers you for an illness and or/ accident and will continue to pay you until you are medically well enough to return to work. With the correct advice (you can’t get this online), you can claim on your ACC benefit plus claim your personal income protection on top of any payments. “Modern” income protection products are designed to have “NO OFFSETS”. This means you can receive sick leave, full pay, rent, ACC, investment income etc without these income benefits being deducted. If you are self-employed, you should be on ACC Cover Plus Xtra, which has been especially designed for this group of people. Your Adviser will show you how to reduce your ACC levies with the appropriate level of income protection in place, so you are not paying twice. ACC levies are compulsory so if you can reduce them that is a win, right?
Here is an example to clarify how ACC Levies and Income Protection work together:
Based on $100,000 of taxable income: The maximum you can insure is 75% of this amount ($75,000) or the tax paid equivalent 62.5% ($62,500). We can insure 50% of the $62,500 under what is called an Agreed Value or Tax Paid benefit. This equates to $2,604.16 per month with NO OFFSETS, as mentioned above. The residual 50% of $2,604.16 per month is insured under the “standard” income protection. If you were to reduce your ACC levies under ACC Cover Plus xtra to the legal minimum (of around $35,000) this is how much you would receive per month if you had an accident:
ACC Cover Plus xtra $2,916.66 per month (taxable)
Agreed value income $2,604.16 per month (non-taxable)
If you were sick or ACC no longer supported your claim, both lots of your income protection would pay you, for example:
Agreed Value income $2,604.16 per month (non-taxable)
Residual income $2,604.16pm (non-taxable)
If you or your spouse or partner take the same $100,000 as a salary earner, and that person were to have an accident, ACC would pay them 80% of the salary ($80,000). Based on insuring that $100,000, the same calculations are used as for self-employed, but look how much more money you will receive if your policies are structured correctly:
ACC employee $6,666 per month (taxable)
Agreed value income $2,604.16 per month (non-taxable and claimable on top of the ACC),
so if you added the tax (say at 33%) on to the Agreed Value income it would equate to $2,682 per month making a
TOTAL OF $9,270 PER MONTH!
That’s more than your normal salary!
BUT WAIT – THERE’S MORE…
If your kindly employer paid you your full $100,000 minus tax you are still able to claim the Agreed Value income of $2,604 per month on top of this, due to the NO OFFSETS product policy wordings. This is gold.
INCOME PROTECTION POLICIES 5+ YEARS OLD generally will NOT have this benefit in their policy wordings.
AND NOW FOR THE FREE STEAK KNIVES!
Just like any other product/service/commodity, insurance has become very competitive, and understanding policy wordings is what we do as Advisers, a bit like what a lawyer does with legal documents!
Should you suffer a fracture, your income protection will pay you out your monthly benefit whether you return to work or not.
Example 1: you break your wrist! For some of us we would return to our desk bound job pretty much immediately, well, based on the above income protection structure you would be able to claim both income protection amounts totalling $5,208 straight away.
Example 2: you fracture your shoulder! This constitutes 2 x the benefit ie $5,208 x 2 = $10,416, whether you can work or not
Example 3: you fracture your back! This constitutes 3 x the benefit ie $15,624
All of these payments are on top of any other benefits you may receive including Salary, ACC etc.
CANCER INSURANCE AND INCOME PROTECTION
Cancer cover sits under the Trauma Insurance product that covers 48 different Traumas you may experience. While Cancer is just one of those, it is sadly the most claimed illness.
Should you suffer Cancer, a lump sum payment is paid immediately upon diagnosis, let’s say it is $100,000. The “modern” policy will also immediately pay you an additional 6 x your income protection. Based on the example above, that would be an additional $5,208 x 6 = $31,248, whether you return to work or not!! Pretty amazing stuff to be sure! For many clients the experience is like “raining money”, which simply means one less major worry they don’t need when going through such a trying time.
If you were to become totally and permanently disabled from your normal occupation, for example a dentist sustains permanent damage to their hand and can no longer perform their job, they would get the lump sum paid out (let’s use the same $100,000 salary again), they would receive another 24 x their income protection benefit up front (for example, 24 x $5,205 = $124,920).
OTHER PRODUCTS AVAILABLE
There are a huge suite of products available to make up your personalised insurance portfolio, whether you are self-employed in a limited liability company, sole trader or employed. Here are some you have undoubtedly heard of and maybe a couple you haven’t: Life insurance; Mortgage Cover; Household expenses cover; Medical insurance; Private hospital care; Key person cover; Shareholder protection; Debt protection. Quality advice with claims support are the key things you need when looking for insurances, so you can concentrate on doing what you do well and know when things go wrong you (and your loved ones) are going to be cared for.
You can read more about Caro’s story and how she helps her clients here: https://www.caroandco.co.nz