Case study: husband & wife team and CPX
Case study: husband and wife team and CPX
We find many businesses overpaying their ACC levies simply because they’ve been told there’s no other way. There is another way to save - a way that gives you more security in case of accident, saves you money and works completely within the ACC framework. CoverPlus Extra (CPX) is an ACC product and is one of the best products on the market.
A typical situation we come across – husband and wife team. The husband is active within the business and the wife takes care of the books and day to day administration. Both are receiving a split of the income from the business in shareholder salaries.
CPX allows for a shareholder to be on a levy code that reflects what they do in a business. In this case the wife should be on an administration code… which is typically a lot lower in cost than the code the business is on.
Pre CPX: If the husband could not work due to an accident, the business would stop operating, and he may be entitled to up to 80% of the previous years income in compensation. They would then have to rely on any private insurance and any other sources of income to get by. If the wife had an accident, the business could continue to operate so she may not receive any compensation. Please note – the ability to receive full compensation under this structure may be affected by other sources of income and ability to work, even in a limited capacity.
Post CPX: If the husband could not work due to an accident, he would get 100% of the agreed CPX value. If the wife was unable to work due to an injury, she would get 100% of the agreed CPX value. Being on CPX at a reduced level of cover does not affect your ability to receive medical expenses or rehabilitation costs such as physio, home help and medical care.
The table below shows the cost of the wife being on the same levy code as the business, compared to the cost of being on an administration code on CPX:
You can see from the table that the cost of CPX for the same amount of income is significantly cheaper – that’s because the cost of administration is significantly cheaper than the cost of being on the same ley code as the business.
Pros to being on CPX:
The level of cover is set to the needs of the individuals within the business
The levy code is specific to the shareholders activities within the business
The claimant can work for up to 30 hours per week and receive other sources of income without it affecting the compensation paid out
The renewal process happens at the same time each year, so you know when to expect an invoice
The policy is based on you as a shareholder, so it is a fairer reflection of the risk ACC carries to insure you
You can change the level of cover depending on your needs, and as your income grows, you can increase the level of cover without filling in all the paperwork
Cons to being on CPX:
The policy can cost a little more – this is so ACC can pay the full amount of compensation
Depending on the size of your business, one shareholder may have to stay on the same levy code as the business
If you do not pay the invoice on time, the policy cancels and you revert back to standard company cover until you reapply
Fatality entitlements are based on the agreed level of cover
If you are considering CPX, we encourage you to seek external advice from your accountant or insurance broker before setting the level of cover. We are happy to do the application but cannot be held responsible for the level of cover decision.
Contact our ACC expert Sue Walton: sue@managecompany.co.nz, or 027 210 4918
