Income protection insurance replaces a portion of your income if illness or injury stops you from working. In New Zealand, ACC covers accident-related work absence — but illness is not covered by ACC. This means a cancer diagnosis, a serious mental health episode, or a cardiac event could leave you without income for months or years unless you have income protection in place.
ACC Covers Accidents — Not Illness
This is the most important distinction for New Zealanders to understand. The Accident Compensation Corporation (ACC) provides income compensation at 80% of your pre-accident earnings if you’re unable to work due to an accident — whether at work, at home, or on the road. ACC is compulsory and funded through levies on wages and petrol. You cannot opt out.
But ACC does not cover illness. If you cannot work because of cancer, heart disease, depression, a neurological condition, or any other non-accident cause, ACC pays nothing. You rely on sick leave (typically 10 days per year under the Holidays Act), any savings you have, and any income protection insurance you hold.
Statistics from the Insurance Council of NZ show that illness, not accidents, is the most common cause of long-term work absence in New Zealand. Given ACC’s solid accident coverage, the real gap in most New Zealanders’ protection is illness-related income loss.
How Income Protection Insurance Works in NZ
A typical NZ income protection policy pays a monthly benefit of 75% of your pre-disability income, after a waiting period (also called a stand-down period or excess period). Common waiting periods are 4 weeks, 8 weeks, 13 weeks, or 26 weeks — the longer you wait, the cheaper the premium.
Benefit periods determine how long payments continue: 2 years, 5 years, or to age 65. A policy paying to age 65 provides the most comprehensive protection but costs significantly more. For most people without substantial savings, a policy with a short waiting period and a benefit period of 5 years or to 65 is appropriate.
Premiums are generally tax-deductible for self-employed people in New Zealand, as the income replaced by the policy would have been taxable. For employees, premiums are not deductible — but this varies; specialist tax advice is recommended.
Key Questions When Comparing Policies
- Own occupation vs any occupation: Own occupation policies pay if you cannot perform your specific job. Any occupation policies only pay if you cannot do any job at all — a much higher bar. Own occupation policies cost more but are significantly more protective.
- Agreed value vs indemnity: Agreed value policies pay the amount specified regardless of your actual income at claim time. Indemnity policies pay based on your actual income at claim — if your income has dropped before you claim, so does your benefit.
- Waiting period: How long can you survive without income? This determines your optimal waiting period.