Income protection insurance is arguably more important for self-employed people than for employees. There’s no sick leave, no employer to top up your income, and no safety net beyond ACC (which only covers accidents). Here’s everything self-employed New Zealanders need to know.
Why Self-Employed People Are More Vulnerable
Employees typically have:
- 10 days of paid sick leave per year (Employment Relations Act minimum)
- Potentially more sick leave by agreement
- Sometimes short-term disability or group income protection through their employer
Self-employed people have:
- Zero paid sick leave
- No employer contributions
- No group cover
- ACC for accidents only — no illness cover
If a self-employed person can’t work for 3 months due to illness, their options without income protection are: draw down savings, go into debt, or reduce their family’s standard of living significantly.
How Income Protection Works for Self-Employed People
The principles are the same as for employees — the policy pays a monthly benefit (typically 75% of pre-disability income) if you’re unable to work due to illness or injury. The difference is in how income is verified and how the benefit is calculated.
Proving your income
Insurers need to establish what your income actually is. For self-employed people, this means providing:
- 2 years of financial statements or tax returns — to demonstrate a track record of income
- IRD income summaries — confirming what you’ve declared
- Sometimes bank statements — to verify business cash flow
If your income varies year-to-year (very common for sole traders and contractors), most insurers use an average of your last 2 years to calculate the benefit level.
Tip: If you’ve been putting personal expenses through the business to reduce taxable income, this may reduce your verifiable income — and therefore your income protection benefit. Speak to your accountant about this before applying.
Indemnity vs Agreed Value Policies
There are two main types of income protection benefit calculation:
Indemnity (most common)
The benefit is calculated at claim time based on your actual income at the time of disability. If your income has reduced since you took out the policy — which can happen with seasonal work, project gaps, or economic downturns — your benefit may be lower than expected.
Good for: people with stable, growing incomes. Risk: benefit may be lower than hoped if income dips before a claim.
Agreed Value
The benefit amount is locked in at the time of application based on income verified then. Even if your income later reduces, the agreed benefit amount is paid.
Good for: self-employed people with variable income, or anyone who wants certainty. Cost: agreed value policies are typically more expensive (15–30% higher premiums).
For self-employed people with variable income, agreed value is often the better choice despite the higher cost — you know exactly what you’ll receive.
Waiting Periods and Benefit Periods
Waiting period
The time between becoming unable to work and when the policy starts paying. Options are typically 2, 4, 8, 13, or 26 weeks.
For self-employed people:
- Short waiting period (2–4 weeks): Suitable if you have minimal savings and cash flow risk is high
- Longer waiting period (8–13 weeks): Reduces premiums; appropriate if you have some savings or business reserves to cover a short gap
Benefit period
How long the policy pays. Options typically range from 2 years to age 65.
- 2-year benefit period: Covers most illness-related work absences but leaves you exposed if you have a chronic condition or serious illness that prevents work permanently
- To age 65: Provides full cover regardless of duration. Significantly more expensive but the right choice if you couldn’t survive financially on reduced assets
For most self-employed people with a mortgage and family, a to-age-65 benefit period is recommended.
ACC and Self-Employed Income Protection
ACC covers accidents for self-employed people based on your declared income to IRD. If you haven’t declared much income (whether through legitimate deductions or otherwise), ACC will calculate your compensation on that lower amount.
Income protection insurance can be structured to cover the illness-only gap left by ACC, reducing the premium.
Indicative Premiums for Self-Employed People (2026)
Monthly premiums for income protection vary by occupation risk class, income level, age, and structure.
Example: 40-year-old self-employed accountant, $100,000 income, $7,500/month benefit, 4-week wait, to-age-65:
- Indemnity policy: ~$150–$250/month
- Agreed value policy: ~$190–$330/month
Example: 40-year-old self-employed builder, same parameters:
- Indemnity: ~$250–$400/month (higher risk occupation)
- Agreed value: ~$320–$520/month
Indicative only. Premiums depend on full underwriting.
Getting Cover
Self-employed people should work with a licensed financial adviser for income protection — not buy direct. Advisers can:
- Access multiple insurers and compare terms
- Structure the policy correctly for your business/personal situation
- Negotiate occupation class (which significantly affects premiums)
- Manage claims on your behalf
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