Is The Broodfonds as an alternative insurance for self-employed professionals something for you?
The self-employed professional
As a self-employed professional you are expected to cover for the risks of incapacity of work yourself. Two thirds of the more than 850.000 self-employed professionals The Netherlands currently are not insured against the incapacity to work. This is because of the high cost and the complexity of the arbeidsongeschiktheidsverzekering (invalidity Insurance for Employees, from here on named the AOV). Still, the incapacity to work is an important subject for you as a self-employed professional. That is why Biba Schoenmaker and Andre Jonkers found a way to avoid an expensive insurance: The Broodfonds.
How the fund works
The Broodfonds is a successful income fund where self-employed professionals save an amount of money on an own account of a Broodfonds group. A Broodfonds group consist of twenty to fifty self-employed professionals. Together they form each other’s insurance in case they can no longer work because of sickness. In this it is required that the participant is an entrepreneur . Besides that the enterprise, that makes up your main income may not exist for shorter than one year. The amount that is saved each month can vary between €45 and €90. With this you create a buffer. When someone from your Broodfonds group is sick each participant transfers money from their buffer to the sick participant. Depending on the monthly contribution the sick participant will receive between €1000 and €2000 a month. Two weeks after a participant turns out to be sick this amount is transferred from the fund. when you are sick for longer than two years you cannot rely on the contributions from the fund.
Besides the monthly premiums a single payment of €275 and a monthly contribution of €10 apply.
The foundation for The Broodfonds is trust. An entrepreneur can only participate in a Broodfonds group when he knows someone from that group. Through this a form of social control is created. On top of that, someone who is sick is often contacted. It is important that a fund consists of no more than fifty participants to ensure the social control.
AOV benefit is taxed in the income tax, faced against that is that paid AOV premiums are deductible from the income tax. The benefits concerning the Broodfonds are fiscally qualified as donations. The paid premium for the benefit of this Broodfonds are defined as savings of the participant. The participants save on their own account and therefore these premiums are qualified as savings and investement consequently the monthly paid premiums in benefit of a Broodfonds are not deductible from the income tax. Income tax only needs to be paid if the total wealth of the taxpayer exceeds €21.139.
The benefits to the sick participant are considered a donation. These donations are not deductible for the donor for the declaration of income tax. The received donation by the sick participant is usually taxed with gift tax. However, an exemption applies if the total donation from a participant to a sick participant does not exceed €2.057 (2013) per year. If this amount is exceeded than gift tax is due over the entire sum. It is important that the group exist of at least twenty participants, so that everyone pays relatively less to the benefits of a sick participant. Through this the participants stay under the threshold and do not need to pay gift tax.
Participating in a Broodfonds group
There are two ways in which you as a self-employed professional, can participate in the Broodfonds. Firstly the option exist to establish your own Broodfonds group, a requirement to this is that the Broodfonds group is created with at least twenty entrepreneurs from your network. The second option is to participate in an existing Broodfonds group. For this you need to be introduced by someone from the group.
Cheaper than the AOV
The trigger for establishing The Broodfonds was the expensive premiums of the AOV. Participating in The Broodfonds is a much cheaper alternative. The paid premium with the AOV is a deductible post in box 1 and with insufficient income in box 1 The deductible post can be deducted in the remaining boxes (usually box 3). The net total of the Broodfonds account is accounted into possession in box 3, the savings and investements.
Easy entry and exit
It is possible to exit from a Broodfonds group on two occasions a year. If, during a sickness you received donations you have to participate for two years from the start of your participation. Anyone who exits can take his savings after deduction of gifts and costs: a single payment of €275 and the monthly contribution of €10.
Participants build up a maximum buffer of 36 monthly deposits. Through this it is prevented that an unnecessary amount of money is saved.
Tax free donation
The received donation in regard to sickness is at the most taxed with gift tax if the yearly threshold value per participant of €2.057 is exceeded.
Participants within a Broodfonds group know each other. This benefits the trust and workings of the funds.
It is easy to lose the safety net
The easy entry and exit can, in our opinion, lead to a collapse of the created safety net. If several participants simultaneously exit the Broodfonds group, the group seizes to exist.
A homogenous group is not an advantage, even though your network often exists of like-minded people.
Great differences between ages and business risks can be disadvantageous for some members of the group. They will have no or less benefit from the fund, but still need to pay if one of the participants is sick. It can also bring risks if a group is very homogenous. Because many different participants reduce the chance that many participants are out of the running and therefore require a donation. When many participants receive a donation simultaneously the saved money may not be enough. It is, therefore, important to create a group where the risks and difference between participants are properly divided.
The concept is based on trust.
The basis of the Fund is mutual trust. In our opinion, in practice, it is hard to maintain trust in a large group. Be cautious who you work with.
The contributed premium cannot be designated as costs and is not deductible
An important difference with the invalidity Insurance for employees (AOV) is that with the AOV you can deduct the premium from the income tax in box 1. If you are incapacitated to work the donations are consequently taxed with income tax. In the Broodfonds your investment is not deductible and the donations from your fellow participants are not taxed with income tax.
The first Broodfonds now exist for five years and has proven to be successful. Up to and including 2013 thirty five Broodfonds groups have been established, beside that twenty funds are currently being established. Assuming that one in ten who is currently working is a self-employed professional, this number can still increase greatly. The Broodfonds is a good example of social resilience to absorb setbacks, and besides that it is a lot cheaper than the AOV. It is, however, a main concern that an obligation is entered on the basis of trust. We emphasize that it is important to ensure with whom these obligations are entered, especially when it concerns a larger Broodfonds group.