Insurance when you are self-employed

An employee who gets sick has statutory sick leave, often an employer top-up, and sometimes group life and income cover through the company. Someone who is self-employed has none of that. The business stops when you stop, and for a sole trader or a small consultancy the revenue usually stops with it.

The gap that catches people out is the ACC one. ACC is a comprehensive accident scheme and it is genuinely good at what it does — but it only covers personal injury. Illness is not covered. If you are diagnosed with cancer, have a stroke, or develop a degenerative condition, ACC pays nothing, and there is no employer standing behind you. Roughly speaking, the events most likely to stop a self-employed person working for months are exactly the ones ACC does not touch.

The second gap is proof. Employees have payslips. If you are self-employed, your insurable income is a figure derived from your business accounts after expenses, and it may be low in the year you need to claim because you reinvested, or because the illness itself hurt trading. Whether your policy pays on what you were earning before, or on what you were earning at claim, is the single most important thing in your income protection wording.

Get the ACC settings right first

If you are self-employed you pay ACC levies whether or not you think about them. The default, CoverPlus, pays weekly compensation based on your most recent taxable earnings — which for a new or variable business can produce a very low figure, and requires proof after the event.

CoverPlus Extra is the alternative. You agree a level of cover with ACC in advance, and if you are injured that agreed amount is what is paid, without having to prove lost earnings. For someone with lumpy income, a new business, or a year of low profit after investment, this is usually the better structure — and it changes how much private income protection you need to buy on top.

Then insure the illness side

1. 1Work out the monthly figure your household needs, not the figure your business turns over.
2. 2Decide the waiting period from your actual cash position — how many weeks can you fund before the mortgage suffers?
3. 3Choose between agreed value and indemnity with your accounts in front of you, not in the abstract.
4. 4Add business expenses cover if you carry fixed overheads — premises, a lease, a loan, staff.
5. 5Consider trauma cover as the fast money: it pays a lump sum on diagnosis, before an income protection waiting period has even ended.

These are the details that decide whether the cover does what you expected. Read them before you compare on price.

• Whether the policy is agreed value, indemnity or loss of earnings — and what evidence each requires at claim.
• How the insurer defines income for a self-employed person: turnover, net profit, profit plus your share of retained earnings, or a formula.
• Whether recent business losses or a start-up period would reduce a claim under an indemnity contract.
• How ACC offsets are applied, and whether any part of the benefit is payable on top.
• Whether income protection premiums are tax deductible in your circumstances, and how that changes if the business pays them.
• Occupation class — a self-employed tradesperson and a self-employed accountant are priced very differently, and the class also affects which definitions are offered.

Every New Zealand insurer writes income protection for the self-employed to its own wording, and the words are where the money is. Two policies that look identical on price can pay very differently when it matters. Closing that gap is the entire job of an adviser.

• Reading two or three years of accounts and identifying the income figure an insurer will actually accept.
• Deciding whether agreed value cover, where it is available, justifies its extra cost for your income pattern.
• Coordinating ACC CoverPlus Extra with private cover so you are not paying twice for the accident risk.
• Structuring who owns and pays for the cover — you personally or the business — with the tax treatment in view.

There are three ways to buy life cover in New Zealand, and they are not equivalent. You can buy direct from one insurer, which means you see one product range and one underwriting appetite. You can buy through your bank, which usually means a single insurer’s product sold under the bank’s brand, often with narrower definitions. Or you can go through an adviser, who quotes several insurers at once and is required to put your interests first.

The premium you pay is the same either way. Insurers build adviser commission into their pricing whether or not an adviser is involved, so going direct does not get you a discount — it just removes the person whose job is to argue your corner at application and at claim time.

• An adviser can see which insurer is currently taking your health history on standard terms, and which one will load or exclude it.
• An adviser can structure cover across two insurers if that produces a better outcome than putting everything with one.
• An adviser handles the underwriting back-and-forth, and is the person who chases the claim when a family is least able to.
• An adviser has to document why the recommendation suits you, which is a written record you can hold them to.

We are a referral service, not an insurer. We do not quote premiums and we do not sell policies. What we do is put you in front of one licensed New Zealand adviser who can compare the market properly.

1. 1

   You tell us what you are looking at

   The form takes about a minute. Nobody asks for your medical history on a web form — that conversation happens with the adviser, properly, and only once you have decided to proceed.

2. 2

   An adviser calls you

   A licensed New Zealand adviser talks through your situation: who depends on you, what you owe, what you already have in place, and what you are actually worried about.

3. 3

   They compare the market

   The adviser quotes across the major insurers, checks which of them will take your health history on the best terms, and puts the options side by side in writing.

4. 4

   You decide, in your own time

   There is no obligation and no cost to you. If the answer is that you already have enough cover, a good adviser will tell you that.