I’ve said for many years that Kiwi's love being self-employed, and we seem to switch between employed and self-employed a lot. Some succeed, some have a change of direction, and some are about a change of situation. The point is that change is inevitable.

What will surprise you; typically, there are over 45,000 start-up businesses each year in New Zealand. Anecdotal evidence also suggests that a large number of these businesses are registered with the Companies Office early in the new year. Unfortunately, a lot of these businesses will simply fail due to cash-flow constraints. Some will be because the business isn’t sustainable, but the more likely reason is someone got injured or was prevented from working due to a disability.

Look before you leap. Aussie shopkeepers and Kiwi small business owners. Terms often used by people looking at our respective markets when looking at the predominant structures for trade and commerce.

Probably not too far wrong, New Zealand has one of the highest per capita self-employed rates in the world. Which is why I am focussing this posting on those of you who are employed rather than self-employed. Because employed Kiwis often have a change in situation and end up self-employed.

A good question and one that is often misunderstood when it comes to income protection.

It’s also been coming up in conversations more recently, suggesting there’s some job security sentiment developing.

In New Zealand, there are five situations that impact your ability to earn an income.

I'm looking for insurance cover, but I do some interesting things;

By interesting things, I'm assuming this is related to your hobbies, activities and occupation. 

Insurance companies do take an interest in what activities you do because sometimes they are risky. Immediate things which come to mind for most people are bungy jumping and parachuting. The list is much longer.

Self-employed? Yup.

Sick of hearing about ACC and health and safety? Yup!

Ok sorry I've got news for you, neither is going away in a hurry. Actually the health and safety bit is going to get worse. I'll talk more about that in another post, as there's a few things going on in the background I'm looking at for clients.

Back to the self-employed and ACC thing.

Insurance and shades of grey, no not 50 shades but certainly something most people don't like to hear when it comes to insurance. Most people want to hear black and white. My experience is every claim has shades of grey and they are rarely cut and dried. There is always something that pops up; most are foreseeable, some not so much.

Where I am going with this is the differing effects different policy wordings have at claim time.

For example there are a few insurance company trauma policies where a good angina attack could almost qualify for a trauma claim and then there are others where you have to be half dead and not working, probably not working in a manual job ever again, before you could claim.

Interesting question, up there with what's the best value income protection?

The answer to both questions is a good quality income protection solution. It will both work at claim and give you great value as a result. The way to do this is talk to a good adviser who will arrange this for you, that's me.

If you mean best value equals cheapest premium, then you have to ask the question do you expect to claim? If not, why have it? Cheapest like most things in life usually translates to inferior.

It oft be said, ’All my insurance adviser does is turn up and sell me more insurance’. While this may be true, I hope it's for the right reasons, you have more risk. This is the point, your risks change.

What is surprising is how people set and forget their insurance, be it life or property insurance. A great example is a past colleague who had not reviewed his contents cover since university, $40,000 then might have been a great deal, now a successful business owner with teenage kids it barely covers what's in his lounge.

Taking a lead from a colleague on blog questions, I've talked extensively on what is income protection, how it works and how to apply it to your situation. What I haven't explained is what it is likely to cost you.

Taking into account that everyone has a different situation, occupations, levels of income, medical history and available financial resources I am going to football the averages for you.

Today in New Zealand the average gross taxable income for earners is about $55,000. I'm going to use this as my base income to establish the cover level using a net of tax, agreed value approach.

Also called premium waiver or premium cover. In a nutshell, it is insurance for your insurance premiums. Ok stop there! Before you go 'huh? I don't need that', consider the following.

The point of waiver of premium benefits is to pay your policy premiums when you are disabled and unable to work. Extending this logic, if you are disabled and unable to work, your income has likely stopped or reduced, often significantly.

If you have a reduction in income due to a disability, it is likely you may miss a premium payment or two. Miss three (months) and your insurance cover will lapse.

ACC (Accident Compensation Corporation) is New Zealand's unique no fault accident rehabilitation and support system

Ok, most of you know about ACC covering you for your medical expenses to treat you and recover from an accident. 

If you have had an accident you probably found this to be partially funded and you had to pay something towards the costs, depending on what you needed to be done. Which is a little disappointing but medical expenses only go so far.

The other aspect people know about is the replacement of income if you are off work in an accident situation, where 80% of your lost income can be replaced after seven days while you recover.

The things people may not fully appreciate are the other benefits and situations ACC cover which you need to be aware of.

I cover a lot of ground in this post, though a bit of a lengthy technical one. Maybe that's part of the reason protecting incomes is not high on the completed tasks list, as policy details can get quite complicated.

I have mentioned before that income protection in New Zealand is not something that is well covered, much like the rest of the world. With about 80% of the population without financial support in a non-accident disability situation. This comes with potentially limited support with ACC. There is a lot of exposure not only for you personally, but also for your family members, co-workers, suppliers and clients.

What is the real risk?

Roy Morgan Research has published updated information on insurance coverage in New Zealand and it is not a particularly pretty picture.

What does it really look like out there in New Zealand?

Almost 1 in 7 Kiwi’s do not have any insurance cover at all. I don’t know about you, but 1 in 7 people I know are not financially independent enough not to need insurance cover at some level. This suggests Kiwi’s are taking the risk that ‘she’ll be right’. This may be knowingly but most likely unknowingly.

Insurance is one of those things people do not like paying for and often bundle it in with power, interest, rates, tax and bank fees. Something to address when we really have to until then, we will ignore it and just pay the bill.

Insurance is about covering a loss, well a potential loss. Because you need to take insurance before you have the loss in order for it to work. People comment ‘but it should cover X, because I know about X and that is what I want cover for’. If you know about X then the insurance company is unlikely to bet on X because it is likely to be a sure loss for them.

Good question as most people struggle with an example of a disability that is not a trauma or an accident. A degenerative back condition is one, no event as such so not ACC. Though there is another, I have seen which was more surprising.

Who would have thought a change in regular management medication would result in not being able to work? Well it can happen, not only once but a recent clients father has had a similar experience too and the similarities are quite surprising. Let’s just call them both Peter.