The Accident Compensation Corporation (ACC) is unique to New Zealand. It provides excellent cover if you have an accident that stops you from working for a period of time.
However, it is very limited cover and you should not put all your faith in ACC protecting you over an extended period of time.
Firstly ACC only covers you if you have an accident – not if you are unwell.
Statistics show that we are more likely to have an extended period of time off work due to an illness rather than injury. Approximately 90% of disabilities are caused by illnesses rather than accidents. (Council for Disability Awareness – USA).
Also, the definition of an accident is prescribed under the legislation and not necessarily what you might consider to be an accident.
Secondly, and more importantly – if you were to suffer a long time disability due to an accident, ACC’s mandate is to retrain you. Their goal is, where possible to get you back into the workforce in some capacity.
Thirdly – ACC has a maximum income that it will pay a benefit on. At present, for self-employed people this income is $111,669 per annum, for employees, it is $113,768 per annum.
Fourth – ACC benefits are paid on your income generated in the 52 we
eks before your disability or accident. A good income insurance policy will look at your maximum 12 month earnings in a previous 3 year period. So, if you were having a bad income year in the year before you were disabled, this would not reduce the amount of your entitlement.
If you are a professional earning a good income, it is likely that once ACC thinks you are able to return to the work force (even in a lowly paid position) the cover may be terminated.
A good income protection policy should continue paying the amount of income you are insured for until such time that you are able to return to work in a similar capacity or role that you were in prior to becoming ill or injured.
If you returned to a lesser role then they would continue topping up your income for the life of your policy.
If you are claiming on ACC and for some reason your payments are stopped (ACC declines your claim or considers you can work in a lessor role) but you are medically still unable to work in your normal role than the income protection policy would take over and start making payments to you under the policy conditions.
Why you need income protection as well as ACC
The great thing about income protection cover is that you are covered for nearly any reason if you are unable to work due to illness or injury. The only real exceptions are
• Self-inflicted Injuries
• Injuries obtained during an illegal activity and
• Some restrictions around complications with pregnancies for females
• Any pre-existing conditions.
In short, you could have the rarest tropical disease that no one has ever heard of and with a good quality income protection insurance policy, you would still be covered. A good policy will even cover you if you end up having time off work due to stress or depression (as long as it isn’t a pre-existing condition.)
ACC only provides basic cover, for accidents only. There are many many other reasons that you may not be able to work because of ill-health, and these are not covered by ACC.
ACC benefits are also limited, based on your previous 12 months earnings, and there are maximum benefits that you can claim if you have a high income.
A good income protection insurance policy covers you for everything (apart from the above exceptions) and will continue to do so for the life of your policy or until you are able to return to a similar role that you were doing before becoming incapacitated.
Unfortunately, there are still a lot of people that find out the hard way that while ACC can be good at times, it is not a total solution to protect your financial position should you be unable to work for an extended period of time.
If you do not have the right insurance cover in place it does not take long to for your mortgage and other bills to fall behind. This added stress can seriously affect your recovery - resulting in even more time off work with your finances spiralling out of control.
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By Paul Swarbrick