In New Zealand we have over 470,000 SME businesses. They make up more than 99% of all businesses in the country and account for about 60% of national employment. They rightly deserve to be called the ‘backbone’ of our economy.

During my time in the insurance industry, I have consistently seen the problems that these business owners face, when they are unable to work, due to either sickness or accident.

Every working New Zealander contributes to ACC, either through their PAYE, or through invoiced levies, based on the industry they work in. Why then do I have my self employed clients, accountants, and other professionals, tell me that this compulsory insurance will not work for most SME business owner at claim time?

There are a number of reasons.

For tax efficiency, a lot of accountants will suggest income splitting. The problem at claim time, is that the income that they show as being earned, is not a true reflection of the persons actual earning capacity, and as such, any payments made from ACC resulting from a claim, are substantially less.

An example of this is if Jim earns $100,000. His accountant could apportion this money to $62,000 Jim and $38,000 to his spouse.

In the event of an ACC Claim, Jim will only get 80% of $62,000 which is $48,000. Less than half of what he actually earned!

I am always concerned when I hear an SME business owner advise that their accounts aren’t up to date, and they are still waiting for their accountant to prepare their financials as ACC requires this information to calculate what is owed.

This issue can be alleviated by ACC CoverPlus Extra, which is the agreed value contract that ACC offers to self employed people who take their income from business drawings.

It would be nice to think that this was the problem solved, BUT ACC only covers individuals for accidents. If an SME business owner has an illness that prevents them from going to work, they will not receive any ACC payment, and therefore the importance of having other income or business revenue contracts in place, is paramount, to ensure the survival of the business entity during this time.

There are over 100 sets of policy wordings in the New Zealand market for income based insurance products. For a self employed business owner, it is essential that they understand what type of contract they have, and how it would work in the event of a claim.

Questions to ask are:

• What type of offsets does my contract have?
• Are their partial payments available, in the event of being able to only work part time?
• Will this income be taxed when on claim?
• Should I be claiming the premium as a tax deduction?