In May 2016 I was asked by Hannah Delaney of the Delaney PR to answer some questions about how someone that has taken the step to working for themselves could protect their income. Here is how the interview went.
What are the options for protecting my income as a contractor?There are many perks to being a contractor – setting your own hours, choosing who you work with, working all hours of the night and the like. When it comes to protecting your income however things are often not as clear cut as they are for salaried workers. Despite our best intentions our workload and therefore income often fluctuates and this can make contingency planning a challenge.
There are a number of options for small businesses and sole traders to protect their income. There is a standard income protection that works for employees as well as the self-employed, being a contractor does not exclude you from this.
If there is a mortgage or rent to protect then there are insurances that can cover this and there is no need to prove income just the expense. The market is very flexible and caters to most needs to protect the home front. If protecting the business revenue is important, for example getting contracts completed, Loss of Revenue cover is ideal. This will put money into the business if you are too disabled to work.
A Key Worker can also be insured, if your business relies on one person for a majority of the revenue. It is also possible to protect any business debt so that if the owner can’t work again or dies the debt can be paid and the estate is not left with the burden. Life insurance for a business is another way to look at it.
What if I have irregular income?
A regular income isn’t necessary; an insurance company will look at the books and can take an average. There are companies that will even allow for a seasonal adjustment in the revenue cover if your business has regular peaks and troughs.
Remember that you can always cover your outgoings such as mortgage or rent and this is not linked to income.
Why is income protection even important?
A person earning $70,000 a year will earn over $5 Million in 40 years of work (assuming a small 3% increase every year). Most people see it as a no brainer to insure their home, car and ‘things’ because they have worked hard to get them and don’t want to have to buy them again if the worst happens. Fewer people think it is important to protect the source of money that bought it all in the first place.
If you lose your car you can go to work and save or borrow on the strength of earnings and buy a new car. If you get sick and can’t work then what? The state is not as generous as the press would have you believe.
The way I like to see it is that if you had a cash machine that dropped your income on your lap for 50 years and it had no guarantee and was irreplaceable, would you insure it? If the answer is yes then drop me a line.
Who should I talk to?
It is beneficial to get an advisor. One that you can trust to do the best for you. One that has access to several companies and that will find the best policy to match your needs. With so many companies and policies on the market insurance can be confusing, remember what the headline gives the small print takes away. It takes time and effort to understand what each policy actually gives and how they interact with each other. Most claims fail because the claimant was never covered in the first place and they were unaware. At claim time it is too late to make changes to your policy. A successful claim begins at the application stage – making sure that the policy gives you cover when you need it. If things can’t be covered then a good adviser will let you know.
As an adviser part of my process is to challenge the underwriting decision to get a better policy for a client. It is also important an adviser reviews any policy and compares it to the marketplace at least every year so if a better option is available or your circumstances change the insurance can be altered to reflect that. During these reviews it might be found that a claim has been missed – the small print can work for you as well as against. An adviser will also handle any claims, when you are ill or grieving the last thing you want is to be arguing with a claims agent. It’s my job to sit on hold and argue the case for you, to find out what you need to make the claim possible and fight your corner while you concentrate on getting better.
Do you have any gems for me to ponder?
For self-employed and sole-traders it is possible to save money on ACC and use those savings to pay for much improved cover offered from private insurers. ACC is a great service and really works well for many employees however it is not ideal for some self-employed.
ACC is limited to maximum earnings of $120,070 for 2016 so the most that can be claimed in a year is $96,056. If earnings are not stable any claim can fall short. If income is split with a partner for tax purposes then there can be other problems at claim time.
ACC won’t cover any illness, including the big three – cancer, heart attack and stroke. However making changes to ACC has to be understood and balanced so it is best not do this on your own or there could be consequences in the future. Speak to an adviser
If you want to chat in confidence about your situation then call 0800 COVER YOURS or visit www.coveryours.co.nz to book an appointment.