Income Protection Insurance in New Zealand
Protect up to 75% of your income if illness or injury stops you working
Income protection pays you a monthly benefit if you can't work due to illness or injury. Most claims in New Zealand aren't covered by ACC: illnesses like cancer, mental health conditions, and back injuries make up the majority of claims. Income protection fills this gap, covering your mortgage, bills, and living costs while you recover.
Key Facts
Why Income Protection Matters
Financial security when you can't work
Monthly Income While You Recover
Receive up to 75% of your income as a monthly benefit if illness or injury prevents you from working. Continue paying your mortgage and bills without draining savings.
Covers More Than ACC
ACC only covers accidents. Income protection covers illnesses like cancer, heart conditions, mental health issues, and chronic conditions, where most claims actually come from.
Protects Your Lifestyle
Keep your family's life on track. Cover mortgage payments, school fees, groceries, and everyday expenses without relying on savings or support from others.
How Income Protection Works in New Zealand
Income protection insurance pays you a monthly benefit if you can't work due to illness or injury. In New Zealand, most income protection claims are caused by medical conditions: cancer, heart disease, mental health issues, back injuries, and chronic illnesses, not accidents. This means relying on ACC alone leaves a significant gap in your financial protection.
When you apply, your insurer completes underwriting to assess your health, occupation, lifestyle, and income. Once approved, your policy includes two key features:
Wait Period
How long you wait before payments start (from 2 weeks to 2 years). Shorter wait periods cost more but provide faster support.
Benefit Period
How long payments continue (from 1 year to age 70). Longer benefit periods provide more comprehensive protection.
Your monthly benefit is based on your income and the type of policy you choose. Three main options are available in New Zealand: Indemnity, Agreed Value, and Mortgage Protection. Consider pairing income protection with life insurance and trauma insurance for comprehensive family protection.
Types of Income Protection in New Zealand
Three options to suit different needs
Indemnity Income Protection
Up to 75% of your actual income
Indemnity cover pays up to 75% of your gross income at the time of claim. Your benefit amount is recalculated based on your actual income when you become disabled.
How it works:
If your income has increased since application, the applied-for amount is payable. If your income has decreased, the benefit is recalculated based on your current income. This means indemnity cover should be reviewed annually to ensure you're getting what you pay for.
Best suited for:
- •Employed professionals who expect their income to rise as they gain experience
- •High earners wanting maximum cover
- •Those confident their income will remain steady or grow
Key considerations:
- •Highest potential benefit (up to 75%)
- •Generally lower premiums than Agreed Value
- •Requires income proof at claim time
- •Benefit can reduce if income drops
- •Premiums are tax deductible and benefits are taxable
Often bundled with life and trauma cover for discounted rates.
Agreed Value Income Protection
Guaranteed monthly benefit, regardless of income changes
Agreed Value locks in your benefit amount at application time. Your payout is guaranteed and won't change, even if your income reduces before you make a claim.
How it works:
When you apply, your benefit is calculated and locked in. At claim time, you receive this agreed amount regardless of your current income. No need to prove income when claiming.
Coverage Tiers:
- • 62.5% of first $70,000 of income
- • 60% of next $30,000 (income $70k-$100k)
- • 55% of next $220,000 (income $100k-$320k)
- • 35% of next $240,000 (income $320k-$560k)
- • 20% of income over $560,000
Best suited for:
- •Those who want to be safe and have certainty
- •Anyone with fluctuating earnings
- •Those who prefer guaranteed benefits at claim time
Note: Self-employed individuals have specific products available (Business Continuity or Start-Up Income Protection for businesses under 3 years old).
Key considerations:
- •Guaranteed benefit amount
- •No income proof required at claim
- •Higher premiums than Indemnity
- •Ideal for variable or unpredictable income
Often bundled with life and trauma cover for discounted rates.
Mortgage Protection
Simplified cover with no ACC offsets
Mortgage Protection covers 115% of your mortgage or rent payments, OR 45% of your income, whichever is applicable (usually we select whichever would pay out the most). The key difference: no ACC offsets.
Important: Combining with Standard Income Protection
Mortgage Protection can be combined with standard Income Protection, but the total benefit cannot exceed your maximum entitlement (75% for Indemnity or 62.5% for Agreed Value).
Example: If your income is $70,000/year, you could have $31,500/year as Mortgage Protection (45% of income) plus $12,250/year as Agreed Value Income Protection, totaling the maximum 62.5%.
How it works:
If injured (ACC covers you): You receive ACC payments PLUS your full Mortgage Protection benefit (no offset).
If sick (ACC doesn't cover you): You receive both your Mortgage Protection benefit AND standard Income Protection benefit (if combined).
The benefit of combining policies is that standard Income Protection has ACC offsets (if ACC pays, the insurer won't), but Mortgage Protection has NO ACC offsets.
Best suited for:
- •Homeowners and renters
- •Trades, construction, or physical workers
- •First-home buyers
- •Anyone wanting simpler underwriting
Key considerations:
- •No ACC offsets (you get both payments)
- •Easier and faster to apply for
- •Simpler underwriting process
- •Generally covers mortgage + income rather than full 75%
Often bundled with life and trauma cover for discounted rates.
Which Type of Income Protection is Right for You?
The right income protection policy depends on your income stability, occupation, and priorities. Here's a quick comparison:
Indemnity
Agreed Value
Mortgage Protection
Not sure which option suits you best? Get personalised advice.
Book Free ConsultationUnderstanding Wait Periods and Benefit Periods
Wait Period (Elimination Period)
How long you wait before payments begin.
Common options in NZ:
- 4 weeks– Fastest support, highest premium
- 8 weeks– Moderate wait, mid-range premium
- 13 weeks– Most common choice (3 months)
- 26 weeks– Lower premium, longer wait
- 52 weeks– 1 year wait, commonly used when combining products
- 104 weeks– 2 year wait, commonly used when combining products
Choosing your wait period:
Consider your sick leave, savings buffer, and monthly expenses. Most people choose 13 weeks to match typical sick leave provisions. Longer wait periods (52 or 104 weeks) are most commonly used when combining income protection products.
Benefit Period
How long payments continue.
Common options in NZ:
- 1 year– Short-term cover for temporary illness or injury
- 2 years– Budget-friendly, covers short-term disability
- 5 years– Moderate protection for most situations
- To age 65– Ensures you are protected until your pension begins
- To age 70– Maximum protection for severe, long-term disability
Choosing your benefit period:
Longer benefit periods cost more but provide comprehensive protection. Consider your age, occupation risk, and family responsibilities.
Income Protection vs ACC: What's the Difference?
Many New Zealanders assume ACC provides sufficient coverage. In reality, ACC has significant limitations.
ACC Coverage
What ACC Covers:
- Accidents only
- Work-related injuries
- Motor vehicle accidents
- Sports injuries
- Falls and physical trauma
What ACC Doesn't Cover:
- Illness (cancer, heart disease)
- Mental health conditions
- Most back pain and chronic issues
- Stress-related conditions
- Degenerative diseases
Income Protection Coverage
What Income Protection Covers:
- All illnesses (cancer, heart conditions, etc.)
- Mental health (depression, anxiety, burnout) – learn more
- Chronic conditions (arthritis, diabetes complications)
- Back injuries and musculoskeletal issues
- Stress and fatigue-related conditions
- AND accidents (as backup to ACC)
Important:
In New Zealand, approximately 85% of income protection claims are due to illness, not accidents. Relying on ACC alone leaves a significant gap in your financial protection.
Who Needs Income Protection?
Self-employed or contractors
No sick leave or employer support. Your income depends entirely on your ability to work.
Single-income families
If your income supports the entire household, income protection is essential financial security.
Anyone with a mortgage
Protect your ability to make mortgage payments if you can't work for months or years.
High earners
The larger your income, the bigger the gap if you can't work. Protect your lifestyle and financial commitments.
Physically demanding jobs
Trades, construction, and manual workers face higher injury and disability risks.
Business owners
Your business and personal income are intertwined. Protect both with the right cover structure.
If you couldn't work for 6-12 months, how would you pay your mortgage and bills? If the answer is concerning, you need income protection.
Frequently Asked Questions
How is income protection taxed in New Zealand?
Does income protection cover mental health conditions?
How does ACC affect my income protection payout?
What wait period should I choose?
Should self-employed people choose Agreed Value?
Can I claim if I can work part-time?
What's the difference between 'own occupation' and 'any occupation'?
Income protection premiums, wait periods, and benefit structures are influenced by underwriting, your occupation, and health history. Your adviser will help you navigate these factors to find the right policy.
Protect your income today
Get specialist income protection advice from an independent adviser. We'll compare Indemnity, Agreed Value, and Mortgage Protection options from AIA, nib, Chubb, and Southern Cross to find the right fit for your situation.