Getting the best return from your ACC levies

If you’re self-employed, staying healthy is pretty important. Getting sick or injured can have a big impact on your ability to keep the money rolling in.

Out of every 1,000 builders off work through disability, 900 will be laid up due to illness not accident. 

And yet ACC only provides compensation for accidental injury, not illness.

Most self-employed people switch from the default ACC plan to something called Cover Plus Extra. There are a number of benefits in doing this, including:

1. Saving money on the levies paid for administrative (non-building) staff
2. Agreeing a set income level on which your compensation (and levy) is based
3. Dialling down your levy payments and using the saving to broaden the cover you get

ACC levies for admin staff

If you’re on the default plan all staff will be rated at your business ACC classification. The rate for builders is much higher than that for office-based occupations. Under Cover Plus Extra you can specify different classifications for different employees depending on their role, which could save you thousands, even if you have just one office employee.

Speed and certainty if a claim is necessary 

On the default plan your compensation is capped at 80 per cent of your actual income, which ACC will determine at the time of the claim by looking at your books, a process which can take some time (during which you’re not getting compensation). If you’ve had a slow patch in the last 12 months (and we know builders’ incomes often fluctuate), or your accountant has split your income with your partner for tax purposes, you may find that your ACC payout is well below what you expect (and need). On Cover Plus Extra you agree a fixed income with ACC and get 100 per cent of that figure if you have to make a claim.

Dialling down your ACC cover and broadening your cover by going private

Cover Plus Extra also allows you to dial down your ACC levy contributions to a minimum level. These savings are then used to buy income protection (also called loss of earnings) insurance, which gives cover for both accident and illness, substantially broadening the cover you get to include the events that are most likely to keep you off work (you’re more likely to be off work through illness rather than accident). While employees don’t pay their own ACC levies, they can still benefit from income protection insurance if they’re forced off the job through illness.

A typical example

Consider Jim, a 40-year-old builder earning $80k:

Cover with ACC only
$67 per week for injury only

 

 

 

Jim's ACC levy works out at around $67 per week for injury only cover. 

By reducing his ACC cover to the minimum allowable under Cover Plus Extra and taking out private loss of earnings insurance he ends up paying $66 per week for cover that includes both injury and illness. 


 

Cover with ACC Cover Plus Extra and Private Loss of Earnings

$66 per week for injury and illness

 

 

This is based on a 5-year benefit period vs cover under ACC that could run until retirement. However, as 91 per cent of claimants are back to work within the first five years this makes sense. Alternatively, for cover that runs until age 65 the cost would be an extra $20 per week. There are also other considerations that may affect whether this arrangement is right for you, such as pre-existing conditions, stand down periods and some benefits that may not be available under private insurance.

If you haven’t done this yet, or want to review the cover you have, get in touch with your financial adviser, or contact Builtin Insurance. They’ll arrange for you to have a chat with an adviser and put some options on the table. 

You can request a review at: https://builtininsurance.co.nz/incomeprotection

By Ben Rickard