Risk Management « One to One Group – Financial Management, Accounting & Risk Services

By: One To One Financial Management  06-Dec-2011
Keywords: Emergency Funds

The news last week that the ACC system is underfunded was not good for our pockets. The short fall was said to translate into ACC levy increases over the next five years of 185% for employees, 71% for employers and 129% for motor vehicle owners. In dollar terms, the government media release suggested, funding the shortfall would cost the average employee an additional $27 a week and the motor vehicle levy would rise from $255 to $585. These are significant increases if they were to proceed.

I am reminded of the young man, aged 30 or so, I spoke with last year. He is not married and does not have children. He doesn’t have savings other than emergency funds at a minor level. He earns about $42,000 per year. I asked him these questions: “if you were to become significantly disabled through accident or illness what quality of life would you have?” “Who would look after you?” “What if it was longer term and you could never work again?” His answer was one I have heard many times. If I can’t work ACC will look after me.

For me that raises the question of where the balance should lie between personal responsibility and reliance on the government (being you and I as taxpayers). Is there a danger that ACC has become, in the minds of much of the population, the ultimate protection and therefore all they will ever need. No personal responsibility needed.

The ACC website advises that it offers a 24-hour, seven-day-a-week, no-fault eligibility for comprehensive injury cover for everyone in New Zealand no matter how the injury happened, even if you did something yourself to contribute to it. Nice. Visitors to New Zealand are also eligible for cover. Very nice.

But the clincher is that it’s a system that applies to physical injury – to accidents and not to illness.
I have seen a variety of statistics on this but all point to illness being a more likely cause than accident to extended time off work. The young man above is missing that key piece of information. But he is definitely not alone.

If illness does occur then his base income will be $184.17 on a sickness benefit or $230.19 on an invalids benefit. The latter equates to a gross income of $13,679 per year, considerably less than he has been earning. And not enough to give him any real choice in life. How will he live, where will he live, who will he live with, what will be his quality of life?

Personal responsibility (or just covering the bases) would suggest he have income protection insurance in place together with consideration of a lump sum insurance to give him choice in housing, seeking treatment and rehabilitation or in simply removing financial stress now and into the future.

As a single male on a solid income he can afford to have those covers in place. But apparently ACC will sort it out for him so there is no need.

By Stephen McFarlane

The information in this article was current at 02 Dec 2011

Keywords: Emergency Funds

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