Income Protection for self-employed
Do you sometimes think about how would you be able to keep up with your financial liabilities? Mortgage, boat payments, lease payments? Being self-employed means you know there is no one to rely upon – you are the warrior and you are here to make the difference -for you, for you family and hopefully for the better world of tomorrow.
Income Protection for self-employed – why have it?
If you are a self-employed person in New Zealand, you are better off by having an Income Protection Policy in place to insure you are going to have your income if something goes wrong. Think about your friends who work for corporates, in the event one of them become seriously ill the person might get some benefit from the organisation he or she works for and where you are simply on your own. There is no one apart from you to think about how you would be able to survive.
The benefits of being self-employed are much bigger and better to compare to being employed. This is the choice you have made and you know you are fully responsible for your income. You get to enjoy some additional perks as being able to treat many expenses as being tax deductible J including income protection insurance premiums.
Types of Income Protection for self-employed
There are two types of Income Protection Insurance in New Zealand. First and possibly the most well-known one is called: “Indemnity” value and the second “Agreed” value.
- Income Protection Insurance if structured under “Indemnity” definition means that you are going to get 75% of your pre-disability income. Underwriting or the confirmation of the amount you are going to be in-title to receive is going to be completed on the day of claim application.
- In comparison “Agreed” value Income Protection Insurance is underwritten on the day of initial application and you have the luxury of knowing the amount from the start of the policy. Agreed value Income Protection Insurance pays 55% of your pre-disability income.
There are a couple of points which you need to consider before you are going to decide which one to choose “Indemnity” or “Agreed” Income Protection Insurance policy structure. “Indemnity” pays 75% of your pre-disability income and the amount you are going to get is confirmed on the day of claim. Now you need to think about – does your income fluctuate from year to year? If the answer is yes and the fluctuation can be quite dramatic then you might want to consider “Agreed” income protection insurance structure.
The benefit of “Agreed” Income Protection Insurance for self-employed is based on the underwriting process and the amount you are going to insure is “agreed” with the insurer on the day of application. Which means your gross income for the current year is going to be scaled to 55% for instance your income is $10,000 a month which means that insurance company is going to pay you 55% of your pre-disability income $5,500.
Best Income Protection for self-employed?
Clearly, Income Protection for self-employed is better be something what you know of from day one and this is why in my opinion you as the self-employed person better insure your income under “agreed” structure.
The good thing about Income Protection for self-employed is that your premiums for your Income Insurance are treated by IRD as expense. On the other hand all Income Protection benefits are going to be taxable which means that if you are going to be on income protection insurance claim – you are going to pay tax from the amount of money you receive from your insurance company.
As a self-employed you would want to make sure that your Income Protection Insurance is structured providing you with greater level of protection from all possible levels of risks.
Many self-employed people in New Zealand rely on ACC. Keep in mind ACC only pays if you had an accident while your private Income Protection for self-employed pays when you are seriously sick.
If you have questions about your personal circumstances and thinking about how to structure your Income Protection for self-employed better, please let me know your age, industry you work in and level of your income. Next working day you are going to get comparable quotes from major insurance companies in New Zealand. Then my office is going to get in touch with you to schedule best time for us to meet or to have a phone discussion about what would work better for you.