Income protection for self-employed people in New Zealand

Self-employed people should not assume that last month's drawings, business revenue and insurable personal income are the same number. Standard ACC CoverPlus generally responds to a covered accident injury and uses filed earnings when calculating weekly compensation. Private income protection is a separate policy whose response depends on its wording, including how disability and income are defined.

The useful first step is to map what you earn, what the business could keep earning without you, and how long personal savings could cover household costs. That creates a factual base for comparing ACC settings and private cover.

A self-employed person's bank deposits may include GST, materials, wages, subcontractor costs and money needed to keep the business running. Household drawings can also differ from taxable income. None of those numbers should be used as a shortcut without checking how the relevant cover defines earnings.

Write down the personal income the household relies on, then separate business overheads that may continue even if you are not working. Also note whether another owner, employee or contractor could keep revenue coming in. ACC says continuing business income or work can affect weekly compensation, so this distinction matters after a claim as well as before one.

ACC says self-employed people and contractors are automatically placed on standard CoverPlus. If an accepted accident injury stops you working, weekly compensation is generally up to 80% of taxable income based on the most recently completed financial year, subject to ACC rules and limits.

Filing tax returns matters because ACC uses Inland Revenue earnings information. The calculation can differ for newly, recently and established self-employed people. ACC may use temporary payment types in some situations, then recalculate after a tax return is filed. If the final earnings are lower than the estimate, an overpayment may need to be repaid.

CoverPlus Extra is an optional ACC product for eligible self-employed people and non-PAYE shareholder employees. ACC says it lets you choose an agreed cover amount, with compensation based on that amount and the selected option if an accident injury stops you working.

That may offer more certainty for someone with fluctuating or limited earnings history, but it does not turn ACC into illness cover. Eligibility, the active policy period, the agreed amount, return-to-work rules and levy cost all need to be checked directly with ACC. Do not compare it with private income protection on the payment number alone.

Sorted describes income protection as insurance that can pay a percentage of income on an ongoing basis for covered illness. The FMA groups income protection with personal insurance for death, injury and serious illness, and stresses the importance of policy definitions and exclusions.

For a self-employed applicant, the practical details are the wording for disability, occupation and income; the evidence needed at application and claim time; the waiting and payment periods; exclusions and pre-existing conditions; and how ACC or other income affects a claim. Different policies can answer these questions differently, so a general article cannot tell you which cover is suitable.

A useful insurance conversation starts with records rather than a target benefit. Bring recent tax returns, current income information, household commitments, business overheads, existing ACC settings and private policies. If the latest tax year no longer reflects the business, explain what changed and keep documents that support the change.

The FMA says an insurance adviser can help explain policy definitions, exclusions, premiums and options. Ask for important answers in writing, including what happens if income falls, the business keeps trading, your role changes or ACC accepts part of the same event. Personal recommendations should come only after those details and your budget have been considered.