Income protection insurance in New Zealand — what it pays, and when.
Your income is the asset that funds everything else, and it is the one most people never insure. Here is how income protection actually works here — including the ACC gap that catches out almost everyone who assumes they are already covered.
What income protection actually does
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 is a different job from every other personal policy. Life cover pays a lump sum when you die — or while you are still alive, if you are diagnosed as terminally ill with twelve months or less to live, which means it can look after you as well as the people you leave behind. Trauma cover pays a one-off lump sum on diagnosis of a listed condition. 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. That ceiling is set by the insurer's product terms rather than by you, so the question worth asking early is what 75% of your income would actually have to stretch across each month.
The gap most people miss: ACC only covers accidents
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.
Income protection or mortgage and rent cover? The difference is ACC
There is a second policy that does a similar job from a different angle, and the choice between the two turns on the same thing the last section did — what ACC is already paying.
Income protection replaces a share of the income itself, commonly up to 75% of gross. But that benefit is fully offset by ACC. If ACC weekly compensation is being paid on an accident claim, your income protection payment reduces accordingly. On an accident, the two do not stack.
Mortgage and rent cover is built around the payment that has to be made each month instead of your salary. The benefit is capped at the lower of 45% of your pre-tax income or 115% of your monthly mortgage repayment or rent — the 115% is there to cover the costs that come attached to the roof, not just the repayment. And it carries no ACC offset, so it keeps paying alongside ACC weekly compensation.
| Income protection | Mortgage & rent cover | |
|---|---|---|
| What it insures | A share of your income, spent on whatever your household needs it for. | The roof over your head — the monthly mortgage repayment or rent, plus the costs that come with it. |
| Maximum monthly benefit | Commonly up to 75% of your pre-tax income. | The lower of 45% of your pre-tax income, or 115% of your monthly mortgage repayment or rent. |
| Offset against ACC | Fully offset. ACC weekly compensation reduces the benefit, so on an accident claim the two do not stack. | No ACC offset. It keeps paying alongside ACC weekly compensation on an accident claim. |
| What that means in practice | The broadest replacement of the wage itself, and the cover that answers illness — where ACC pays nothing at all. | A narrower benefit that still pays when ACC is already paying, so it keeps working on the accident half of the risk. |
General information only. Benefit limits and offset wording differ between insurers and change over time — the terms that apply to you are the ones in the policy you are offered.
Which is why these two are more often held together than chosen between. Income protection is the cover that answers illness, where ACC pays nothing at all. Mortgage and rent cover still pays on an accident claim, at the point where income protection has stepped aside for ACC. What the right mix looks like depends on your income, your repayments, and how much of your own risk is accident rather than illness — which is a conversation, not a rule.
The three ways a policy works out what to pay you
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.
| Basis | How the benefit is set | What to watch |
|---|---|---|
| Agreed value | The monthly benefit is fixed when the policy is issued, based on income you prove up front. | You have to supply financial evidence at application rather than at claim time. Availability has narrowed, and not every insurer still offers it. |
| Indemnity | The benefit is calculated at claim time, against your earnings in the period before you stopped work. | A quiet year, parental leave or a business reinvestment year immediately before a claim can reduce what you are paid. |
| Loss of earnings | Pays the shortfall between what you earned before and what you are earning now. | It follows your actual loss, so income from other sources can reduce the payment. Read how the policy defines earnings. |
General information only. Product terms differ between insurers and change over time — the basis available to you depends on the policy you are offered.
What it costs, and whether the premiums are deductible
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.
What income protection does not cover
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.
Common questions
