Managing business risk – Personal/Family

In our final article in the four-part series on managing risk for trade businesses, we focus on the risk of something happening to key people in the business (that means you)

Construction is a risky business, more so than most, yet many builders don’t spend enough time really understanding their risk environment and putting in place strategies to manage, avoid or transfer that risk.

FOUR AREAS OF RISK

• Property
• Liability
• Financial
• Personal/Family

Is your business’s most valuable asset insured? What would happen to your income if that asset suddenly went out of action?

Here are the facts:

• According to ACC statistics, the area most commonly injured by residential builders is the lower back/spine.
  On average, those injured are on ACC for more than two months.
• According to the Ministry of Health, there are over 10,000 cases of cancer among New Zealand men each year, with the most common forms being prostate, colorectal and melanoma. If you’re between 25-44 years old, melanoma is most likely, if you’re more than 44 years old, it’s prostate cancer.

No one likes to think that it will happen to them, but the reality is that it can. And if you have a family that relies on your income, no doubt you want to make sure they’ll be looked after if something does happen. So what are the things to think about?

A safe workplace and healthy lifestyle are the best insurance, as is an annual health check-up that can pick up problems early. However, prevention can only go so far and you never know what may happen – be it accident or illness – down the road.

ACC only covers personal injury

When it comes to accidents which affect your ability to earn income – either at home or at work – New Zealand’s unique ACC scheme has most scenarios covered.

For work-related injuries, ACC covers accidents, conditions that come on gradually because of your work, and infections or diseases caused at work by a particular task or environmental exposure, among others.

Injuries caused outside of work are covered as well.

However, ACC’s compensation payouts for ‘loss of earnings’ are linked to your income so, because it’s quite common for builders to have income levels that fluctuate monthly, they may sometimes receive lower pay-outs than they might expect.

ACC Cover Plus Extra

To avoid having this occur, many self-employed people opt out of the default ACC scheme and choose ACC Cover Plus Extra. This means you set an agreed income threshold and will be paid a guaranteed amount in the event of a claim. Combined with private insurance for illness and income protection, this can be very cost effective and substantially broaden your cover.

What if you become ill?

Cancer, heart disease and diabetes are the top three causes of illness for men in New Zealand, none of which are covered by ACC. For any self-employed person with a family that relies on their income, it’s worth having personal insurance to cover the possibility of a worst case scenario. Here are the most common options:

Life insurance Pays a lump sum upon your death. This could pay off the mortgage, clear other debts or go towards your kids’ education.

Permanent disability Pays a lump sum in the event of permanent disability. This can be linked to your ability to return to your previous occupation, or to work in any job.

Trauma Pays a lump sum in the event of certain illnesses that require medical attention and/or surgery.

Income protection Pays a selected percentage of lost income if you become disabled or unable to work due to illness or injury. Beneficial in circumstances where ACC payments are limited or not payable.

Private health insurance For urgent or emergency treatment, you will be looked after by the public health system. However, if you need to see a specialist, have non-acute surgery or a diagnostic procedure such as an MRI, the public system will put you on a waiting list. This is where health insurance can help, providing faster access to treatment by avoiding public hospital waiting lists.

Key Person insurance A key person is someone in the business responsible for generating business income. It may also apply to an individual whose loss has a significant operational impact, such as a project manager. Key Person cover pays an agreed monthly benefit to a business for a set period if a key person is disabled because of a continuing sickness or injury.

This type of insurance is best discussed with an authorised financial adviser, who will build a picture of your needs and put together a package that best suits your situation. Financial advisers in New Zealand must be licensed and are regulated by the Financial Markets Authority. They are subject to strict disclosure and compliance requirements, much like builders are now. If you’d like to speak to an adviser in your area, please give the team at Builtin a ring and we can put you in touch with someone from our network.

This is the final article in this series about managing the risk faced by businesses in the construction industry. Let us know if there are any other insurance or guarantee related topics that you’d like to read about in future issues.