Every self-employed person I know of can tell at least one story about how ACC diddled a mate out of their full 80% income entitlement when they got crook.

In most cases (but not all) ACC didn’t ‘diddle’ anyone.

In fact it’s often their mate who has a poor understanding of how ACC coverage actually works, and in turn didn’t set up their personal or business affairs in a way that avoids a problem. It was a lack of advice that actually caused the problem.

Personally, I’ve found ACC is pretty good. I snapped an AC ligament a few years back and they covered the cost of the specialist, some physio, some CT scans, and they did it fast. No complaints from me!

I don’t have personal experience on the income replacement part of ACC, but most self-employed people know that ACC will pay up to 80% of your earnings if you have an accident and can’t work. That’s what you pay your levies for. Most people also know that ACC is charged based on your previous year’s earnings.

Now, to get a claim, you need to do two things:

  • Prove that you’ve suffered a financial loss because an injury has kept you from working.
  • Get agreement that your injury is a result of an accident and not due to degeneration

Sounds easy in theory (and in reality, it often is) but there are some red flags that catch self-employed people:

  • First year in business? Without financials to prove what you earned it’s impossible for ACC to pay anything. No income history means no income and no income means no loss so no payout.
  • Accountant wound down your income so that you don’t pay as much tax? This is a perfectly legitimate thing to do, but in all cases it means your ACC pay-out will follow suit. Remember ACC pays 80% of the income you pay tax on not 80% of what actually landed in your bank account.
  • Splitting income with your spouse? This is a great way of reducing your overall income tax burden but ACC will only look at the income attributed to you when compensating you. It means any income you split off won’t be captured and you’ll only get 80% of ‘your’ piece. Will that be enough?
  • Not working before your injury? You need to have been actively working in the 4 weeks prior to getting injured. If you weren’t then you might not get anything at all.
  • Having a boomer income period? If you’re doing substantially better in the year of your injury than in the previous year, remember your ACC will still ‘look backwards’ at the previous year’s income. You’ll get paid something but it could be a lot less than you’re used to.
  • Was it really an accident? If ACC sees your injury as being more to do with degeneration then they don’t have to compensate you.
  • Can you go back to work part-time? If you can do more than 10 hours a week at work then ACC start to reduce what they pay you.

It’s actually possible to avoid or substantially minimise all of these problems with decent insurance planning. You do this by combining an Agreed Value ACC policy (they call it Cover Plus Extra) with a separate Income Protection policy from a reputable insurer.

If that sounds like having twice the insurance then don’t worry, there’s less of a double-up than you might think. The answer lies in winding your ACC cover down and taking up the slack with a private insurance policy. The money saved on the ACC side pays for the private insurance policy that will cover you for illnesses as well as accidents, and not just work related illnesses. And the good news is that the overall cost is typically about the same as what you’re currently paying in ACC levies.

At the risk of repeating myself, the upshot here is that you avoid almost all the horror stories you hear about ACC pay-outs. Specifically:
  • Income protectionYou know how much you’ll be paid at claim time, no guess work. It won’t matter if your income fluctuates or if your accountant has been creative or whatever – once your policy is in place you’re set.
  • Your claim will be paid sooner because the policy is agreed. We can do this because you won’t have to prove what your financial loss has been, that’s sorted out upfront.
  • You’ll have cover for illness as well as an injury.
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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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