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Articles by Steve Munro - Guest Contributor.

Mind the Gap: Understand the ACC Cap!

AUTHOR: Steve Munro - Guest Contributor
Invited guest writer

POSTED: 08 November 2023

As an insurance adviser and a property investor, I’ve often felt like a circus performer, juggling every dollar amidst soaring interest rates. Life's unpredictability remains the one constant through it all.

The ACC Reality Check
Many perceive the Accident Compensation Corporation (ACC) as a beacon. However, contrary to popular belief, it's not the all-encompassing safety net that it appears to be. Many Kiwis might be surprised to learn that ACC has its limits, with a ceiling set at $2,615 weekly (that's circa $136k per year - ACC pays 80% of this amount less tax). Those earning beyond this limit will face a substantial gap, which is particularly daunting for both homeowners and property investors dealing with sizeable mortgage commitments.

The Real Cost of Liquidation
Here’s a scenario: Health issues force you into a rushed property sale during a market dip. The numbers aren’t favourable. As you finalise the deal to release the much-needed cash to relieve financial stress, the IRD may suddenly have their hand out, waiting for their cut. Once your health recovers and the market booms, you realise the significant opportunity lost. The property you hastily sold is now worth substantially more. This situation underscores the value of each insurance premium paid, as the cost of the policy pales in comparison to the potential financial impact of a hasty sale.

Bridging the Gap with Insurance
Insurance is not just a safety net—it’s a vital lifeline, especially when handling large mortgages. It offers more than mere coverage; it provides peace of mind that unforeseen events won't derail your financial plans. Irrespective of whether you're earning over the ACC cap or not, there are still ways to structure your income protection so that a portion of your payments will not be offset against any income paid by ACC. This approach puts you in a much stronger position at claim time in the event of an injury.

From One Investor to Another
Consider this: Would you purchase a home without a builder's report? Similarly, relying solely on ACC is risky, especially for us property enthusiasts. Remember, forewarned is forearmed. Fortify your safety nets with the right insurance, ensuring your investments remain secure through all life’s twists and turns.

Conclusion
In the property investment game, staying ahead is crucial. Understand the nuances of ACC, strengthen your defences, and ensure your investments can withstand any storm.

Steve Munro
Risk Direct Insurance
www.riskdirect.co.nz
SteveM@riskdirect.co.nz

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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.

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Testimonials

This letter is to express my appreciation for the assistance and encouragement of both Anthony Lipscombe and particularly John Heaslip over the last financial year. The period since activating my trading trust has been one of considerable stress, as well as personal development, as I embarked on this as a relative business neophyte with virtually no awareness of the contemporary requirements of running a business, particularly the financial records aspect. During much of this period I have therefore felt considerable out of my depth. However I have been lucky enough to have had the benefit of the advice and support of John Heaslip in rationalizing what was a fairly chaotic set of records of the first year property trading. I am able to say that John in particular, has been unstinting in his attention to my needs and has done so in a manner which has never alluded to my extremely rudimentary grasp of managing a business, or even of being unable to set out a spread sheet properly. The result of the above guidance is that now, although my trading trust would still not be able to operate without the advice of GRA, I do least feel a sense of satisfaction that I have got to my present point without major disaster and that my property trust does now have some kind of firmer basis for any future activities - Name withheld by request

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