ACC CoverPlus and ACC CoverPlus Extra, what you need to know

'ACC CoverPlus' and 'ACC CoverPlus Extra,' are part of the Accident Compensation Corporation (ACC) coverage in New Zealand. ACC provides comprehensive, no-fault personal injury cover for all New Zealand residents and visitors to New Zealand. Here's a breakdown of each:

ACC CoverPlus:

• This is the standard cover provided by ACC.

• It is automatically provided to self-employed workers and contractors.

• The compensation for lost earnings is based on 80% of the taxable income in the previous year.

• If you are injured and cannot work, the compensation might take some time to start because it is based on your previous year's earnings, which have to be assessed.

• The amount of cover might not accurately reflect your current earnings if your income varies from year to year.

ACC CoverPlus Extra:

• This is an optional, alternative cover that self-employed individuals and shareholders in companies can apply for.

• It allows you to negotiate a pre-agreed level of lost earnings compensation, which can be beneficial if your income fluctuates or if you want certainty about the amount you’ll receive if injured.

• Payments start immediately after an injury once you're unable to work, avoiding delays in income.

• It offers more flexibility and certainty in terms of compensation levels.

• However, you need to apply for this cover and provide financial documentation to support your chosen level of cover.

• You cannot get this cover if you are on PAYE, because PAYE has ACC Levies included in it.

In essence, ACC CoverPlus Extra provides more control and certainty over the level of compensation in case of injury, which can be especially useful for those with variable incomes or those seeking more immediate compensation following an injury. On the other hand, ACC CoverPlus is an automatic, standard cover that bases compensation on previous earnings.

What are the downsides to ACC cover plus?

ACC CoverPlus, the standard coverage provided by the Accident Compensation Corporation (ACC) for self-employed individuals and contractors in New Zealand, has several potential downsides that are important to consider:

1. Based on Previous Year’s Earnings:

The compensation for lost earnings is calculated based on 80% of your taxable income from the previous year. If your income varies year to year, the compensation might not accurately reflect your current earnings or financial needs.

2. Delayed Compensation:

With ACC CoverPlus, there can be a delay in receiving compensation payments. This is because the compensation amount is determined based on the assessment of your previous year's income, a process that can take time. This delay can be challenging if you need immediate financial support due to an injury.

3. Inflexibility in Coverage Amount:

Since the compensation is directly linked to your last year's declared income, you have less control over the coverage amount. This can be a significant disadvantage if your income has increased substantially in the current year or if the nature of your work involves significant income fluctuations.

4. Proof of Inability to Work Required:

To receive compensation, you must prove that you're unable to work due to the injury. This process can sometimes be complex and time-consuming, potentially leading to further delays in receiving compensation.

5. Limited Coverage for New Businesses:

For those who are newly self-employed or whose business is in its early stages, the compensation might not adequately reflect their current or potential earnings, as it is based on previous tax returns which may show lower income levels.

6. Possible Underinsurance:

If your income is significantly higher in the current year than it was in the previous year, you could be underinsured, meaning the compensation you receive might not be enough to cover your actual loss of earnings.

7. Complexity for Varied Income Sources:

If your income comes from multiple sources or is not straightforward (e.g., fluctuates seasonally), it may complicate the calculation of your compensation.

It's important for self-employed individuals and contractors to carefully assess their income patterns and potential risks to decide whether standard ACC CoverPlus is sufficient for their needs or if they should consider ACC CoverPlus Extra for more tailored coverage.

So what best for you?

To determine which ACC coverage is best for you – either ACC CoverPlus or ACC CoverPlus Extra – you'll need to consider several factors related to your work situation, income, and personal preferences. Here are some key aspects to help you make an informed decision:

1. Nature of Your Income:

• If your income is stable and consistent year-to-year, ACC CoverPlus might suffice.

• If your income fluctuates significantly, or if you expect a considerable increase in earnings, ACC CoverPlus Extra could offer more appropriate coverage since you can specify the compensation amount.

2. Need for Immediate Compensation:

• If immediate access to compensation after an injury is critical for you, ACC CoverPlus Extra is advantageous as it starts paying out immediately after the injury once you're unable to work.

3. Desire for Predictability and Control:

• ACC CoverPlus Extra allows you to agree on a set compensation level in advance, providing more predictability and control over your coverage.

4. Recent Changes in Earnings:

• If you're newly self-employed or your business is in a growth phase with increasing earnings, ACC CoverPlus Extra might be more suitable to reflect your current earning potential.

5. Complexity of Income Sources:

• If you have multiple or complex income sources, ACC CoverPlus Extra can offer a more straightforward approach to compensation.

6. Administrative Burden and Eligibility:

• Consider if you're willing to go through the application process for ACC CoverPlus Extra, which involves providing financial documentation and possibly undergoing an assessment.

7. Personal Risk Tolerance:

• Assess your own risk tolerance and financial stability. If having a guaranteed, pre-agreed level of compensation provides peace of mind and financial security, ACC CoverPlus Extra might be worth the extra effort.

8. Cost Considerations:

• While both plans are part of ACC’s no-fault scheme and funded by levies, the cost may vary depending on the chosen compensation level in ACC CoverPlus Extra.

9. Specific Business Needs:

• Consider any specific needs or circumstances related to your business that might make one type of cover more advantageous than the other.

• If you reduce your CoverPlus Extra down to the minimum cover, you can use the savings to subsidise the premiums for Income protection Cover, which cover both accident and illness. ACC will not cover for illness. So you can reduce your CoverPlus Extra down to the minimum, so that you are not paying for accident cover twice.

• All of this can be very overwhelming, and the best option depends on your individual circumstances and preferences, and this is where we can help. It is our responsibility to understands your specific business and income situation and provide tailored advice to help you up weigh the pros and cons of each option.