Your ability to earn an income is your most valuable financial asset. If illness stops you from working for months or years, income protection insurance replaces most of your salary — keeping your mortgage paid, your family fed, and your financial plan intact.
Income protection pays up to 75% of your pre-disability income if you can't work due to illness or injury. In NZ, ACC covers accident-related income loss — so income protection primarily covers illness (cancer, heart disease, mental health, musculoskeletal). A 35-year-old office worker earning $90,000 pays roughly $60–$120/month for a 2-year benefit period. To-age-65 benefit periods cost significantly more but protect longer claims.
How Income Protection Works in NZ
- You’re unable to work due to illness or injury
- After a waiting period (usually 4, 8, or 13 weeks), claims begin
- Insurer pays you up to 75% of your pre-disability income each month
- Payments continue until you recover, the benefit period ends, or you reach age 65
Key variables you choose:
- Waiting period: How long before payments start (4, 8, 13, or 26 weeks)
- Benefit period: How long payments last if you remain unable to work (1 year, 2 years, 5 years, or to age 65)
- Sum insured: Up to 75% of your gross monthly income
ACC vs Income Protection — Understanding the Gap
This is the most misunderstood aspect of NZ income protection.
ACC covers: Income loss from accidents — injuries caused by an accident. ACC pays 80% of your pre-accident income (up to the ACC cap, ~$138,000/year as of 2026).
ACC does NOT cover: Income loss from illness — cancer, heart disease, diabetes, mental health, back pain (non-accident), neurological conditions. These are by far the most common reasons people can’t work long-term.
The stat: In NZ, illness causes roughly 3× more long-term disability than accidents.
What income protection covers: Illness AND accidents (top-up above ACC). For accidents, income protection often coordinates with ACC — paying the gap between ACC’s 80% and your policy’s 75% entitlement (policies differ — check the coordination clause).
Waiting Periods — Which to Choose?
The waiting period is how long you must be unable to work before your claim payments begin.
| Waiting period | Premium impact | Best for |
|---|---|---|
| 4 weeks | Highest premium | Those with minimal sick leave/savings |
| 8 weeks | Moderate premium | Common choice — matches most employers’ sick leave |
| 13 weeks | Lower premium | Those with 3 months’ expenses in emergency fund |
| 26 weeks | Lowest premium | Those with substantial savings or generous employer sick pay |
Rule of thumb: Choose a waiting period that matches how long your emergency fund + sick leave + employer income support would last.
If you have 3 months of emergency savings and your employer pays full salary for 6 weeks of sick leave: a 13-week waiting period makes sense.
Benefit Periods — The Critical Decision
| Benefit period | Premium | Protection |
|---|---|---|
| 1 year | Low | Covers short-term illness only |
| 2 years | Moderate | Covers most illness episodes |
| 5 years | Higher | Covers medium-term disability |
| To age 65 | Significantly higher | Full protection for long-term/permanent disability |
The case for to-age-65: A 35-year-old who develops cancer and can’t work for 10 years would exhaust a 2-year benefit period after $180,000 in payments (at $90k/year × 75% × 2). A to-age-65 policy would pay ~$675,000 over the same period.
The difference in premium between 2-year and to-age-65 is material — but so is the risk. Long-term disability is rare but financially catastrophic without cover.
Common approach: To-age-65 for 50%–60% of income (base protection), shorter benefit period for additional cover.
What Does Income Protection Cost in NZ?
Indicative monthly premiums, $90,000 salary (75% = $67,500/year benefit), office occupation, non-smoker, 8-week wait:
| Age | 2-year benefit | To age 65 |
|---|---|---|
| 30 | ~$50–$80/month | ~$100–$150/month |
| 35 | ~$65–$100/month | ~$130–$200/month |
| 40 | ~$90–$140/month | ~$180–$280/month |
| 45 | ~$130–$200/month | ~$260–$400/month |
| 50 | ~$180–$280/month | ~$370–$580/month |
Indicative only. Premiums vary significantly by occupation, health, gender, and insurer. High-risk occupations (manual trades, farming) pay 2–3× more than office workers.
Occupation classes: Insurers group occupations by risk. Office workers (class 1–2) get the lowest premiums. Tradespeople, farmers, manual workers (class 4+) pay significantly more.
Agreed Value vs Indemnity — Important Distinction
Agreed value: Sum insured is fixed and agreed at application. If your income drops before you claim (parental leave, reduced hours), you still receive the agreed amount. More expensive but more predictable.
Indemnity value: Benefit is based on your income at time of claim. If your income was lower when you became unable to work, your benefit is lower. Cheaper premium but less certainty.
Which to choose: Agreed value for primary earners who want certainty. Indemnity for those whose income is stable and unlikely to vary downward.
Who Needs Income Protection Most?
High need:
- Self-employed / contractors — no employer sick pay, no fallback
- Single income households
- High mortgage relative to income
- Anyone without significant savings or emergency fund
Moderate need:
- Employees with some employer sick pay but limited savings
- Dual income households where one income is essential
Lower need (but still worth considering):
- Dual income, both partners earn similar amounts, very low debt, large savings
NZ Income Protection Providers
Income protection in NZ is primarily adviser-distributed. Main providers:
- Partners Life — most comprehensive policy wording, adviser-only
- AIA NZ — competitive, Vitality integration, adviser + some direct
- Asteron Life — competitive pricing, adviser-only
- Fidelity Life — NZ-owned, good mid-market option
- Cigna NZ — direct online option, simpler product
Frequently Asked Questions
Is income protection tax deductible in NZ? For personal (non-business) income protection: no, premiums are not deductible. However, benefits received are also not taxable income — the trade-off for no deduction.
For businesses covering an employee or key person, different rules apply — consult an accountant.
Can I get income protection if I’m self-employed? Yes — and it’s arguably more important for self-employed people who have no employer sick pay. Insurer uses your average income over the past 2 years to calculate the benefit amount.
Does income protection cover mental health? Most policies cover mental health conditions including anxiety and depression — but with a standard 2-year benefit period even if the policy is to-age-65 (standard mental health limitation). Check your policy’s specific wording.
What if I become partially disabled? Most modern policies have a partial/proportionate disability benefit — if you can work but only part-time or in a reduced capacity, you receive a proportionate payment.