Income protection insurance in New Zealand — what it pays, and when.

Income protection is the policy that keeps money arriving when you cannot earn it. You choose a monthly benefit, a wait period before payments begin, and a benefit period they run for. If illness or injury stops you working, the policy pays that benefit for as long as you remain unable to work and the benefit period lasts.

That makes it a different animal from every other personal policy. Life cover looks after other people after you die. Trauma cover pays a one-off lump sum on diagnosis. Income protection is the only one that answers the ordinary, unglamorous question underneath most financial plans: if the money stopped on Friday, what happens next month?

Most households can absorb a few weeks. Very few can absorb a year. Insurers cap the benefit at a percentage of your pre-tax income — commonly around 75%, sometimes structured as a slightly lower ongoing percentage plus an allowance for KiwiSaver contributions or business overheads. The cap is deliberate: there has to be a financial reason to go back to work.

This is the single most common misunderstanding we correct, and it is an expensive one to hold. New Zealanders know ACC is there, assume it is broad, and conclude they are already covered.

ACC covers personal injury caused by an accident. It also covers treatment injury and certain work-related conditions. What it does not cover is illness. A back that gave out gradually, a cancer diagnosis, a heart attack, a stroke, a mental health condition that makes work impossible — none of those are accidents, and ACC weekly compensation does not apply to any of them.

Where ACC does apply it is genuinely good. It pays up to 80% of your pre-injury weekly earnings, subject to a maximum weekly amount that is adjusted each year. Employees are usually covered by their employer for the first week, with ACC picking up from there. But it answers one half of the risk, and it is not the half that keeps people off work longest.

If you are self-employed the detail gets sharper again. ACC CoverPlus is the default, and it works off the income you declared in your most recent completed tax year — so the year you had a quiet winter is the year that sets your cover. CoverPlus Extra lets you agree a level of cover with ACC in advance instead, which is usually the better structure for anyone whose income moves around. Either way, both are accident cover. The illness half of the risk is still open, and that is the half income protection closes.

Two policies can carry the same monthly benefit on the schedule and pay very different amounts at claim time. The difference is the benefit basis, and it is worth understanding before you compare prices.

General information only. Product terms differ between insurers and change over time — the basis available to you depends on the policy you are offered.

The practical version: if you are salaried on a steady income, indemnity is usually sensible and cheaper. If you are contracting, earning commission, or running a company where you take a modest salary and leave profit in the business, an indemnity policy assessed on that salary can pay a fraction of what you assumed. That is the moment agreed value earns its premium.

Most people reach for the short wait period, because four weeks feels safer than thirteen. It is usually the wrong trade. Short waits are expensive precisely because most claims are short, and the premium saved by stretching the wait is often exactly what makes a to-age-65 benefit period affordable. A policy that pays quickly for two years and then stops is protection against a bad year. A policy that pays from week thirteen until you are 65 is protection against the illness you never fully come back from — and that is the one that would actually change your family's finances.

We do not publish premiums, and you should be wary of anyone who does. Income protection is priced on your age, occupation, health, smoker status, the benefit amount, and both dials above. Two people the same age in different occupations can be quoted very different numbers for identical cover. A quote is a five-minute conversation, not a table.

Tax treatment generally follows the benefit. Where the monthly payment would be taxed as income when you claim — typically how indemnity and loss-of-earnings policies are treated — the premiums are usually deductible. Where the policy is written so the benefit is not taxed, the premiums generally are not. It turns on how your specific policy is structured, so confirm it with your accountant rather than assuming.

Redundancy is the big one. Income protection pays when illness or injury stops you working, not when your role stops existing. Some insurers offer a limited redundancy benefit as an optional extra, but it usually runs for a short period, has a stand-down after the policy starts, and comes with conditions about how long you have been in the job. It is a narrow add-on, not a second policy.

Beyond that: anything you did not disclose at application, and anything the insurer excluded when they underwrote you. Pre-existing conditions are frequently written out by name. This is the least glamorous part of the process and the one that most determines whether a claim is paid, which is a large part of why advice exists — getting the disclosure right at the start is worth more than shaving a few dollars off the premium.

Three situations where we would tell you to do something else first. We would rather say so now than sell you a policy you cancel in eighteen months.

And one honest note on how we are paid: insurance advice at this practice is remunerated by commission from the insurers we are contracted with. That is set out in full in our public disclosure statement. It is the reason we would rather tell you to pay off a card than write you a policy — a client who keeps cover for twenty years is worth far more than one who cancels next year.

There is no calculator on this page, because the number that matters comes out of a conversation about your actual commitments, not a slider. We work out what your household genuinely needs each month, how long you could self-fund, what ACC would and would not do for you specifically, and what a policy costs against that. Then you decide.

Angharad meets every client face to face at least once — in person around the Southern Lakes, by video anywhere else in New Zealand — and the adviser who writes the plan is the one who reviews it as your circumstances change and handles the claim. You can see the whole thing in our six-step process, or read more about Angharad.