ACC and Private Income Protection – How do they differ?
As a Kiwi, if you’re self-employed or an employee, you have a level of income protection in the event of an accident at work. However, the key word in the acronymn ACC, is of course accident. What happens when you can’t work because of a health condition? Who protects your income?
Private insurance and ACC work very differently. With ACC you are only covered for up to 80% of your lost earnings if you’re out of work due to an accidental injury. By comparison, private income insurance offers coverage if you are unable to work due to an accident or an illness. This is an important difference to note as according to statistics, the chances of a male aged between 18 and 65 years suffering a critical illness or a permanent or temporary disability is 30% (25% for a female). (quotemonster tables stats, need link).
Terms of Benefits
In terms of benefit maximums should you make an accident claim, ACC will limit any ongoing income replacement payments to 80% of your delcared income. This is generally not an issue for those in an employed PAYE situation. However, if you are self-employed this can become tricky as you need to prove your loss of earnings through recent business account information and your declared income – so if you have been covering a large portion of business expenses to minimise your tax obligations, you may find yourself qualifying for a much smaller ACC payment than what you would actually need to continue maintaining your standard of living. Also bear in mind that any benefit paid by ACC is taxable.
Benefit Maximums for Private Income Protection
In terms of benefit maximums for private income protection, you may be limited to up to 75% of your income depending upon whether you select an agreed or indemnity value product. In short, an agreed value product provides a smaller benefit but is non-taxable, wheres as an indemnity benefit is usually a larger amount but is taxable (you can read more about the diffferences here). Although at first glance the benefit maximum appear less than the 80% offered by ACC, it is important to consider that with private income protection there is the ability to structure your cover in such a way that should you claim due to an accident, you would receive an payout from both ACC and your private insurer. And more importantly, remember that ACC provides cover only in the event of an accident, private income protection provides cover should you not be able to work due to an accident or an illness.
Due to the nature of income protection and the countless options that are available, it is important to ensure you are making the most of any cover you have, this includes ensuring it is tailored to meet your employment siuation and your budget. With access to experts on all things income protection, we can help with comparions and price indications, offer you tips for consideration and also point you in the right direction to ensure you have the right cover for the right situation.
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