The ACC Gap Explained: Why 80% Isn't Enough | QuoteHub

By QuoteHub Editorial Team · Updated 2025-09-25

The ACC Gap Explained: Why 80% of Your Income Is Not Enough

ACC is one of the most generous accident compensation schemes in the world. It covers every New Zealander, regardless of how an accident happens, and it pays up to 80% of your pre-injury earnings while you recover. On paper, that sounds solid. In practice, there are three distinct gaps in ACC coverage that leave most Kiwis significantly exposed, and most people do not realise it until they are already claiming.

This guide breaks down exactly what the ACC gap is, shows you the real dollar shortfall through worked examples, and explains how to close it.

What ACC actually pays

When you suffer a personal injury caused by an accident and cannot work, ACC pays weekly compensation at 80% of your pre-injury gross earnings. This is subject to a one-week stand-down period (you receive nothing for the first week) and a maximum earnings cap.

As of 1 April 2025, the key figures are:

Parameter Amount
Replacement rate 80% of pre-injury gross earnings
Maximum liable earnings $152,790 per year
Maximum weekly compensation $2,418.55 gross per week
Minimum weekly compensation (full-time) $752 gross per week

From 1 April 2026, the maximum liable earnings increase to $156,641, and the maximum weekly compensation adjusts accordingly.

These numbers sound reasonable at first glance. But there are three gaps hidden inside them.

Gap 1: The 20% income gap

The most obvious gap is the 20% that ACC does not replace. If you earn $80,000 per year and suffer an accident that prevents you from working, ACC will pay you roughly $64,000 gross. You lose $16,000 a year immediately.

For many households, that 20% cut is not a minor inconvenience. It is the difference between meeting your mortgage payments and falling behind.

Worked example: The 20% gap on a typical income

Scenario: Sarah earns $90,000 per year. She breaks her back in a mountain biking accident and cannot work for nine months.

Before accident On ACC
Annual gross income $90,000 $72,000
Monthly gross income $7,500 $6,000
Monthly shortfall $1,500
Total shortfall over 9 months $13,500

Sarah's mortgage, rates, insurance premiums, and school fees do not drop by 20% because she is injured. Her costs stay the same while her income falls. Over nine months, the gap adds up to $13,500 before tax.

The tax complication

Here is something that catches many people off guard. ACC weekly compensation is taxable income. It is taxed at source, just like a salary. So the 80% figure is 80% of your gross earnings, and you still pay tax on what you receive.

Depending on your marginal tax rate, the effective replacement rate after tax can be closer to 70-75% of your previous take-home pay. The gap between what you were earning and what you actually receive in your bank account is larger than it first appears.

Gap 2: The earnings cap gap

ACC only insures your income up to the maximum liable earnings threshold, which is $152,790 for the 2025/26 year. If you earn above this amount, the excess is completely uninsured by ACC.

This affects more New Zealanders than you might expect. Tradies running their own businesses, dual-income households, IT professionals, healthcare specialists, and small business owners frequently earn above the cap.

Worked example: The earnings cap in action

Scenario: James is a self-employed electrician earning $180,000 per year. He falls from scaffolding and cannot work for six months.

What James earns What ACC insures
Annual income $180,000 $152,790 (cap)
ACC pays (80%) $122,232
Annual shortfall $57,768
Monthly shortfall $4,814
Total shortfall over 6 months $28,884

James loses nearly $29,000 over six months. That is not 20% of his income. It is closer to 32%. The higher your income above the cap, the wider this gap becomes.

For someone earning $250,000, the effective ACC replacement rate drops to around 49% of their actual income. That is a gap of over $125,000 per year.

Gap 3: The illness gap

This is the biggest gap of all, and it is the one most Kiwis overlook entirely.

ACC does not pay anything for illness. Not a cent. If you cannot work because of cancer, a heart attack, a stroke, a mental health condition, or any other illness, ACC's weekly compensation does not apply. The trigger for ACC is an accident. Illness is simply outside its scope.

This matters because illness is statistically far more likely to stop you from working than an accident is. According to industry claims data from major New Zealand insurers, the leading causes of long-term income protection claims are:

None of these are covered by ACC. For a detailed breakdown of what falls outside ACC's mandate, see our guide on what ACC does not cover.

Worked example: The illness gap

Scenario: Emma earns $100,000 per year. She is diagnosed with breast cancer and needs six months off work for surgery, chemotherapy, and recovery.

With ACC (accident) With ACC (illness)
ACC weekly compensation $80,000/year (80%) $0
Income gap $20,000 $100,000

If Emma's inability to work had been caused by an accident, she would receive $80,000 gross. Because it is caused by illness, she receives nothing from ACC. Her entire income disappears.

Emma may have some sick leave from her employer, perhaps four to eight weeks. After that runs out, she has no income unless she has private insurance or substantial savings.

How long does ACC pay, and when might it stop?

Even when ACC is paying your weekly compensation, it is not guaranteed to continue indefinitely. ACC has the right to review your entitlement and can reduce or stop payments if:

This means that even for accident-related claims, ACC is not a guaranteed long-term income replacement. It is a rehabilitation-focused system designed to get you back to work, and payments can be adjusted or stopped along the way.

Putting it all together: The real size of the ACC gap

Most people think of the ACC gap as a single 20% shortfall. In reality, there are three gaps stacked on top of each other, and most New Zealanders are exposed to at least two of them.

Gap Who is affected Size of the gap
The 20% gap Everyone 20% of income, plus tax effects
The earnings cap gap Anyone earning above $152,790 All income above the cap is uninsured
The illness gap Everyone 100% of income for any illness

For a complete comparison of how ACC and private insurance work together, see our ACC vs private insurance guide.

How income protection closes each gap

Income protection insurance is specifically designed to fill the gaps that ACC leaves. Here is how it addresses each one.

Closing the 20% gap

Most income protection policies pay a benefit of up to 75% of your gross income. When combined with ACC's 80% for accident claims, the income protection policy typically tops up the difference. Many policies are structured as "ACC top-up" for accidents and full benefit for illness, meaning you pay a lower premium because the insurer is not covering what ACC already provides.

Closing the earnings cap gap

Income protection policies insure your actual income, not a government-set cap. If you earn $200,000, you can insure up to 75% of that amount. There is no equivalent of ACC's maximum liable earnings threshold.

Closing the illness gap

This is where income protection is most critical. Because ACC pays nothing for illness, income protection is the only way to replace your income if you are diagnosed with a serious health condition and cannot work. Given that illness is the most common cause of long-term inability to work, this is arguably the most important gap to close.

If you are unsure whether your current cover addresses these gaps, a free cover check takes a few minutes and gives you a clear picture of where you stand.

The cost of closing the gap vs the cost of not closing it

Income protection premiums vary depending on your age, occupation, income, benefit period, and waiting period. As a rough guide, a 35-year-old office worker earning $80,000 might pay between $60 and $120 per month for a comprehensive income protection policy.

Compare that to the cost of not having cover:

Scenario Duration off work Income lost without cover
Accident, earning $90,000 9 months $13,500 (20% gap)
Accident, earning $180,000 6 months $28,884 (cap gap)
Illness, earning $100,000 6 months $50,000 (full gap)
Illness, earning $100,000 12 months $100,000 (full gap)

The annual cost of income protection is typically less than one month's mortgage payment. The cost of not having it can be tens or hundreds of thousands of dollars in lost income at the exact moment you can least afford it.

Choosing the right waiting period

One of the most effective ways to manage the cost of income protection is to select an appropriate waiting period. This is the number of weeks you wait before the policy starts paying. Common options are 4 weeks, 8 weeks, and 13 weeks.

If you have an emergency fund that can cover two to three months of expenses, a longer waiting period will significantly reduce your premiums while still protecting you against the scenarios that would cause real financial damage.

What to do next

The ACC gap is not a flaw in the system. ACC was never designed to be a complete income replacement scheme. It is an accident compensation programme, and it does that job well. But understanding its limits is the first step to making sure you and your family are properly protected.

If you want to find out what it would cost to close the ACC gap for your specific situation, get a free income protection quote from QuoteHub. An authorised adviser will assess your circumstances and provide tailored recommendations at no cost and with no obligation.

Frequently Asked Questions

What is the ACC gap?

The ACC gap refers to the shortfall between what ACC provides and what you actually need to maintain your income and lifestyle. It includes three components: the 20% income reduction (ACC only replaces 80%), the earnings cap (income above approximately $153,000 is uninsured), and the illness gap (ACC pays nothing if you cannot work due to illness rather than accident).

Does ACC cover 80% of my take-home pay?

No. ACC pays 80% of your gross (pre-tax) earnings, and the payment itself is taxable. After tax is deducted from your ACC payments, the effective replacement of your previous take-home pay is typically closer to 70-75%, depending on your tax rate.

What happens if I earn more than the ACC cap?

If you earn more than the maximum liable earnings ($152,790 for 2025/26), ACC will only calculate your weekly compensation based on the cap amount. Any income above this threshold is completely uninsured by ACC. The only way to cover this shortfall is through private income protection insurance.

Can I get income protection just for illness if ACC covers accidents?

Yes. Many income protection policies in New Zealand are structured as "ACC integrated" or "ACC top-up" policies. These provide full income replacement for illness-related claims and a top-up payment for accident-related claims where ACC is already paying. This structure keeps premiums lower because the insurer is not duplicating ACC's accident cover.

How much does income protection cost to close the ACC gap?

Premiums depend on your age, occupation, income, health, benefit amount, benefit period, and waiting period. As a general guide, most New Zealanders pay between 1% and 3% of their gross income for comprehensive income protection. For someone earning $80,000, that is roughly $800 to $2,400 per year. An authorised adviser can provide an exact quote for your circumstances.

Is the ACC gap getting bigger?

The earnings cap increases each year in line with wage growth, but it does not keep pace with the incomes of higher earners. The illness gap remains unchanged because ACC's mandate has not expanded to cover illness. As healthcare costs rise and more New Zealanders earn above the cap, the practical impact of the ACC gap is growing over time.

References

  1. Accident Compensation Corporation. Weekly compensation rates and thresholds, 2025/26.
  2. Accident Compensation Corporation. Levy rates for 2025/26 and 2026/27.
  3. Accident Compensation Corporation. What we cover, 2025.
  4. Accident Compensation Corporation. Annual Report FY 2024/25.
  5. Inland Revenue Department. Tax on ACC payments, 2025.
  6. Financial Markets Authority. Licensed insurer conduct and claims data, 2025.

Disclaimer

The information in this article is general in nature and does not constitute personalised financial advice. Insurance needs vary depending on your individual circumstances, health, and financial situation. We recommend consulting an authorised financial adviser before making any insurance decisions. QuoteHub is operated under FSP 712931 and is authorised to provide financial advice in New Zealand.

Explore related pages: Life Insurance, Income Protection, Health Insurance, Trauma Insurance.