Insurance · 2 September 2026 · Written by Joanne Walker, Financial Adviser (FSP380146)
Most New Zealanders assume ACC has them covered. ACC covers injury, not illness, and that single distinction is what income protection is built to solve.
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Income protection insurance replaces part of your income when illness or injury stops you working. In New Zealand its main job is covering illness, because ACC does not.
ACC pays weekly compensation of up to 80 percent of the income you earned before your injury, and for most people it starts from day 8 (Source: ACC). That is genuinely good cover, and it is the reason New Zealanders think about this less than people in other countries do.
The limit is in the name. ACC is the Accident Compensation Corporation. It responds to injury. It does not respond to a cancer diagnosis, a heart condition, a stroke, a back problem that developed over years rather than in one moment, or a mental health condition. If any of those stop you working, ACC weekly compensation is not available to you, and what remains is your sick leave, your savings, and whatever private cover you arranged in advance.
There is a second limit worth knowing. ACC calculates weekly compensation from your earnings before the injury, which can be complicated if you are newly self-employed, recently changed roles, or your income moves around. The figure you would actually receive is not always the figure you expect.
Three settings decide what an income protection policy does for you, and they are where most of the cost sits.
Cover in New Zealand is usually capped at around 75 percent of pre-tax income. The cap is deliberate: insurers want a financial reason for you to return to work when you are able to.
How long you are off work before payments begin. Common options are 4, 8, 13, 26 and 52 weeks. A longer wait means a lower premium, and it is usually the lever people pull when cost is tight.
How long payments continue once they start. Common options are 2 years, 5 years, or through to age 65. This is the setting that decides whether the policy handles a bad year or a changed life.
What counts as unable to work. Some policies test whether you can do your own occupation, others whether you can do any occupation you are suited to. The wording matters more at claim time than the premium does at sign-up.
A policy with a 4 week wait and a to-age-65 benefit period is a different product from one with a 26 week wait and a 2 year benefit period, even though both are called income protection. Matching those settings to your actual sick leave, savings and mortgage is the work.
This is the distinction that surprises people at claim time, and it is worth understanding before you sign anything.
Under an indemnity policy, your income is verified when you claim, not when you apply. If your income has fallen since you took the policy out, the payment is based on the lower figure. Under an agreed value policy, the amount is settled with the insurer at application, based on evidence you provide then, and it does not move if your income later drops.
Agreed value costs more and requires more paperwork up front. It suits people whose income is variable or hard to evidence, which in practice often means the self-employed. Indemnity is cheaper and works well when income is steady and easy to prove. Neither is better in the abstract; they fail in different situations.
Availability of agreed value cover has narrowed in recent years, so what is on the market when you apply may be different from what a friend arranged some years ago.
Income protection has an unusual tax position in New Zealand, and it links directly to the agreed value question above.
Inland Revenue's position is that amounts paid out under a personal sickness or accident policy are generally not taxable income, but a payment calculated by reference to loss of earnings may be taxable (Source: Inland Revenue). Where the benefit would be taxable, the premium is generally deductible. Where the benefit is not taxable, the premium generally is not deductible.
That trade runs one way or the other, and it changes the real cost of the cover as well as the real value of a claim. It is a tax question rather than an insurance one, so the sensible step is to confirm the treatment of your specific policy with your accountant before you decide how to structure it.
These two get confused often, and they solve different problems.
Mortgage repayment cover is built around one bill. It pays an amount aimed at your mortgage payment if you cannot work. Income protection is built around your income, so it covers the mortgage and everything else: food, power, school costs, the car.
Mortgage repayment cover is usually cheaper, because it insures less. For a household with a large mortgage and little else, it can be a reasonable fit. For a household with children, other debt, or a single earner carrying most of the load, insuring only the mortgage payment leaves the rest of the budget exposed.
Neither replaces life cover, which answers a different question again. If you want that part, our guide on what happens to your mortgage when you die covers how the layers fit together.
No. ACC covers injury, not illness. If you are off work with cancer, a heart condition, a stroke or a mental health condition, ACC weekly compensation does not apply (Source: ACC). That gap is the main reason income protection exists in New Zealand.
Private income protection in New Zealand is usually capped at around 75 percent of pre-tax income. The cap exists so there is still a financial reason to return to work. The exact percentage, and how your income is measured, differs by insurer and by whether the policy is agreed value or indemnity.
The wait period is how long you are off work before payments start, commonly 4, 8, 13, 26 or 52 weeks. The benefit period is how long payments continue once they begin, commonly 2 years, 5 years, or through to age 65. A longer wait period lowers the premium; a longer benefit period raises it.
It depends on how the policy is structured. Inland Revenue's position is that payouts under a personal sickness or accident policy are generally not taxable income, but a payment calculated by reference to loss of earnings may be taxable (Source: Inland Revenue). Where the benefit is taxable, the premium is generally deductible; where it is not, the premium generally is not. This is a tax question rather than an insurance one, so check the treatment of your specific policy with your accountant.
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This article is general in nature and is not financial advice. Insurance policy wordings, underwriting criteria and tax treatment vary between providers and change regularly. Always seek advice specific to your situation before making decisions. Trebla Partners Limited (FSP728251) is a Financial Advice Provider. Read our disclosure statement →
