It’s one thing to have income insurance but it’s quite another to have it work when you need it to. This is where advice from an insurance person (that’s us) is crucial as are periodic reviews of your coverage. Here’s an example of what can happen despite your best intentions.

Jonathan started his own business in 2006, taking up a fish and chip franchise opportunity following 15 years in the building trade. In January of 2011 aged 42 he suffered a lower back injury which put him out of work for 6 months full time.

While his injury was an obvious set back he felt comfortable knowing that ACC would cover 80% of his income while he was away from work. The reality was a bit different though because although Jonathan was covered by ACC he only received $400/week instead of the $800/week he was expecting. It was better than nothing. But not much better.

Why did this happen?

Like most self- employed people Jonathan legitimately arranges his affairs to minimise his tax bill. Consequently his tax returns show a relatively low income. And that’s the figure ACC base their payment on. Hence the mismatch between what Jonathan expected and what he actually got.

Some other ways this could occur include

  • Recessionary times have knocked your revenue taking your bottom line with it or
  • There’s a gap in last year’s earnings because you went on an extended holiday or
  • Your business is in the start up phase and earning very little taxable income right now

And it’s not just ACC that poses this problem – if your private insurance policy is an ‘indemnity’ style of policy you could get the same result, so it pays to check and make the appropriate adjustments.

We totally recommend income insurance for just about everyone, but it needs to be done right and it needs to suit you. If you have any concerns about your own circumstances, please make contact with your broker or us before it’s too late.

About Campbell Hastie

Cam is one half of Auckland based mortgage brokers, The Go 2 Guys.

He makes a living by sharing what he knows about mortgages with people, arranging mortgages for people and then insuring people.

He doesn't claim to know everything about mortgages himself which is why he teamed up with David Mercer — hence the ‘2’ in Go 2 Guys.

He writes posts regularly on his blog and has been told he has an ability to share his knowledge in a simple and sometimes memorable way.

Feel free to comment and ask any questions. Contact Campbell Hastie m: 027 697 7789.

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