In New Zealand, we have a no fault accident compensation scheme, known as ACC for the Accident Compensation Corporation.
But a lack of understanding of the ACC's mandate is quite common. The assumption is that 'an accident is only going to disable me' which leaves kiwis wide open to financial difficulties when facing disability.
ACC is designed to meet the financial needs of a victim in an accident situation removing the litigious aspect of an individual's recovery. ACC is something not present anywhere else in the world, where the accident victim has to meet their costs and work to recover them from those responsible.
For example, James was walking down his path at home and tripped over an uneven step, fracturing his ankle requiring surgery. ACC covered the cost of his surgery, hospital stay, rehabilitation and 80% of his income while he was off work. Elsewhere in the world as the property owner, he would have had to cover his own costs.
Like many people you may have decided that ACC will protect you if you have an accident. But disability statistics show that about 60% of disability claims are caused by events other than accidents.
Time off for recovery from heart attacks and cancer treatment are common, degenerative conditions where joints wear out and people have back trouble often result in income protection claims but ACC won't pay for these. Loss of a loved one or a major event in someone's life can end up with depression and anxiety which prevents people from working.
Even in an accident situation people develop secondary conditions which prevent them from working. The most common situation is depression and mental health. ACC will cover you while your physical injury heals but if you develop depression as a consequence of the accident and your original injury has healed then ACC will generally turn the tap off on you. This is where your income protection picks up the slack. The exception to this is major head trauma where a full recovery is often difficult to achieve.
Why you need Additional Income Protection
If you have an accident and can't work, ACC will replace up to 80% of your provable taxable income to a maximum of about $96,000 per annum. This is taxable income.
Under the scheme, if 80% of your income is more than $96,000 then all of your income won't be replaced in an accident situation and you need to consider additional income protection options.
If you have a short-lived injury and return to work quickly, ACC works well as they replace your income after 7 days (such as short wait time is cost prohibitive with income protection insurance).
However, what if this isn't the case? ACC are understandably focused on getting you back to work - even if that means a different job or occupation. For many people this is not an optimum situation.
Philip was a barrister and suffered a head injury which resulted in him no longer being able to practise law. He could have gone and done another job which didn't require this level of mental performance and at a lower income which ACC would have transitioned him into. Because he had income protection he is living with his condition with the income he had prior to his injury with the choice about what he is able to do. He now chooses to give back to his community with the time he now has.
If your original injury has healed but you can't go back to work due to some underlying injury, ACC can transition you to a sickness benefit which in most cases means a significant drop in income for you.
Income protection on the other hand is about insuring you for your own occupation.
If you were permanently disabled and prevented from returning to your original occupation your income protection would fill the gap between your original income and your current situation.
Like ACC, the insurance company would still want to get you back to work in your own occupation, because that would be the best outcome for most people.
ACC also typically excludes 'degenerative conditions', but these are generally covered by income protection insurance if the policy is taken prior to an injury or loss of function.
A degenerative condition is a condition which has no specific 'event' causing it. For example a bad back, often this comes from a number of small events which aren't noted or addressed at the time. Over 20-30 years this causes the structures in your back to degenerate until you have sufficient lack of movement and pain which prevents you from being able to do the things you do.
Additionally you can take most private insurance with you if you move overseas - unlike ACC. Even if you live in New Zealand but injure yourself while overseas, unless you can return to New Zealand, ACC won't cover the costs incurred.
Jane travelled to Asia, didn't have sufficient travel insurance when she had an accident on a scooter and ended up in hospital. Because there was no travel insurance and Jane was overseas ACC would not be paying, Jane had to pay for treatment from her own pocket. If Jane returns to New Zealand then further follow up treatment may be available, but would have to be assessed by ACC before any claim would be accepted.
Neither ACC or private insurance cover is straightforward.
Many people miss out on payments because they believe they have more cover than they actually do. For example not realising that ACC doesn't pay if you are on maternity leave or that insurance companies could offset any payments from ACC against what they will pay often result in surprises for the policy holder.
This is why you should get an expert to review your insurances, particularly if you are self-employed.
If it has been a while since you have reviewed your current cover and risk situation contact Edge Mortgages and Insurance - leaders in insurance solutions.
