Income protection in New Zealand

Your income is probably your most valuable asset. Income protection replaces part of your earnings if illness or injury stops you from working, covering the gap that ACC doesn't.

Written by Henry Smith, Financial Adviser. Reviewed by Craig Smith Business Services Limited, trading as Smiths Insurance and KiwiSaver, a licensed Financial Advice Provider (FSP712931). Last updated August 2026. About the author

What is income protection?

The basics of how it works

Income protection insurance pays you a regular benefit, typically monthly, if you cannot work because of illness or injury. It is designed to replace a portion of your lost earnings so you can keep paying the mortgage, covering household bills, and looking after your family while you recover.

Most policies will pay up to 75% of your gross pre-disability income. The exact percentage, and the rules around how long payments last, depend on the type of policy you choose and the insurer you go with.

Unlike a lump-sum payout (such as life or trauma cover), income protection provides an ongoing income stream. Think of it less like a one-off safety net and more like a replacement pay cheque.

Waiting period

The number of days or weeks you must be unable to work before benefit payments begin. Also called the "stand-down" or "deferral" period.

Benefit period

How long the insurer will continue paying your benefit once it starts. Options typically range from 2 years through to age 65 or 70.

Indemnity

A policy type where your benefit is calculated based on your actual earnings at the time you claim. Premiums are generally lower.

Agreed value

A policy type where the benefit amount is locked in when you take out the policy, regardless of what you are earning at claim time. Premiums are typically higher.

ACC gaps: where you're not covered

The gap most Kiwis don't know about

Most New Zealanders assume ACC will look after them if they cannot work. And for accidents, it often does. ACC usually pays up to 80% of the income you earned before your injury, and from 1 July 2026 the gross maximum weekly compensation rate is $2,466.20 a week. But ACC only covers injuries caused by accidents. If you get sick, whether that is cancer, a heart condition, a neurological illness, or a mental health condition, ACC does not pay a cent.

That is a bigger gap than most people realise.

42% — Disease or illness, the most common cause of disability for NZ adults (Stats NZ, Disability Survey 2013)
24% — Of the NZ population identified as disabled in 2013 (same survey)
$0 — What ACC pays if you cannot work due to illness

What ACC covers

Injuries from accidents only
Up to 80% of pre-injury earnings
Capped at $2,466.20 gross/week (ACC rate from 1 July 2026)
Covers rehabilitation and treatment costs
Weekly compensation requires you to have been earning at the time of injury
Funded through levies, no personal premiums

What income protection covers

Illness AND injury (including non-accident)
Up to 75% of gross income (indemnity)
No ACC-style weekly cap, though insurers set their own maximum monthly benefit
Covers conditions like cancer, heart disease, back injuries
Benefit period you choose (2 years to age 70)
You pay premiums, but it fills the ACC gap

The illness gap is real
Illness, not accident, is the more common reason New Zealanders lose the ability to work. Statistics New Zealand’s Disability Survey 2013 , the most recent national survey of its kind, found that the most common cause of disability for adults was disease or illness, at 42 percent. Because ACC responds only to the accident side, relying on ACC alone leaves the single largest cause of lost earning capacity uninsured.

How income protection works

From claim to payment

The process is straightforward once you understand the key moving parts. Here is what happens when you need to make a claim.

You become unable to work An illness or injury prevents you from doing your job. You notify your insurer and provide medical evidence supporting your claim.
The waiting period runs Your chosen waiting period (e.g. 4 weeks, 8 weeks, or 13 weeks) must pass before any payments begin. During this time you rely on sick leave, savings, or other support.
Benefit payments begin Once the waiting period ends, the insurer starts paying your monthly benefit, typically up to 75% of your pre-disability income. Payments are usually made monthly.
Payments continue for the benefit period Benefits keep coming for as long as you remain unable to work, up to your chosen benefit period (e.g. 2 years, 5 years, or to age 65). If you recover and return to work, payments stop.
You recover or reach the benefit period end When you return to work, or when your benefit period expires, payments cease. Some policies offer partial benefits if you can return to work part-time.

Partial disability benefits
Many income protection policies include a partial or "proportionate" benefit. If you can return to work in a reduced capacity, say part-time or in a lighter role, the insurer may pay a reduced benefit to top up your lower earnings. Ask about this when comparing policies.

Indemnity vs agreed value

Two policy types with different trade-offs

This is one of the most important decisions when setting up income protection. The two main policy types determine how your benefit is calculated and how tax applies.

Indemnity

Benefit based on your actual income at time of claim
Typically covers up to 75% of gross earnings
You need to prove your income when you claim
Premiums are generally lower
Premiums are usually tax-deductible
Benefit payments are taxed as income
Good if your income is stable and provable

Agreed value

Benefit amount locked in when policy starts
Typically covers up to 62.5% of gross earnings
No need to prove income at claim time
Premiums are generally higher
Premiums are usually NOT tax-deductible
Benefit payments are typically tax-free
Good for self-employed or variable income earners

Feature	Indemnity	Agreed value
Benefit calculation	Based on earnings at claim time	Locked in at application
Maximum benefit level	Up to 75% of gross income	Up to 62.5% of gross income
Income proof at claim	Required	Not required
Premium cost	Lower	Higher
Premium tax deductible?	Generally yes	Generally no
Benefit taxed?	Yes, as income	Typically no
Best suited for	Stable PAYE earners	Self-employed, variable income

Feature comparison at a glance

Tax makes the net benefit similar
At first glance, 75% (indemnity) looks better than 62.5% (agreed value). But because indemnity benefits are taxed and agreed value benefits typically are not, the after-tax amount you actually receive can end up being quite similar. Your adviser can model the exact numbers for your situation.

Waiting periods explained

How long before payments start

The waiting period (also called the stand-down or deferral period) is the number of weeks you must be continuously unable to work before your benefit payments kick in. The longer the waiting period you choose, the lower your premiums, but the more you need to self-fund during that initial gap.

Waiting period	Premium impact	Best suited for
2 weeks	Highest premiums	No sick leave, no savings buffer
4 weeks	High premiums	Limited sick leave or emergency fund
8 weeks	Moderate premiums	Some sick leave + modest savings
13 weeks	Most popular, a good balance	Reasonable sick leave + savings buffer
26 weeks	Lower premiums	Solid savings or employer sick leave
52 weeks	Much lower premiums	Strong savings + other cover in place
104 weeks	Lowest premiums	Large emergency fund or ACC bridge

Common waiting periods and their effect on premiums

Match your waiting period to your financial runway. How many weeks could you cover expenses from sick leave, savings, and your partner's income?
Check your employer's sick leave. If you have 8 weeks of paid sick leave, a 13-week waiting period might be manageable with a small savings buffer.
Consider the premium savings. Moving from a 4-week to a 13-week waiting period can reduce premiums by 30-40% with some insurers.
Factor in ACC. If your condition is accident-related, ACC may bridge part of the waiting period. But do not rely on it for illness.

13 weeks is the most common choice
Industry data shows 13 weeks is the most popular waiting period for income protection in New Zealand. It strikes a balance between affordable premiums and a manageable self-funding gap. Most people can bridge 3 months using sick leave and savings.

Benefit periods

How long payments can last

The benefit period determines how long the insurer will keep paying you if you remain unable to work. Choosing the right benefit period is about balancing cost against the level of protection you want.

2 years: The most affordable option. Covers shorter-term illness or recovery periods. Suits people who mainly want a financial bridge while they rehabilitate. Lowest premiums, but leaves you exposed for long-term conditions.
5 years: A middle ground. Covers most recovery scenarios, including many cancers and serious surgeries, though may not cover permanent disability. Moderate premiums with meaningful protection.
To age 65: The most common long-term option. Pays right through to retirement age if you cannot return to work. Covers long-term or permanent conditions. Higher premiums, but comprehensive protection for your working life.
To age 70: Maximum protection. Some insurers offer this for people planning to work past 65. Premiums are the highest but the safety net extends furthest. Available from selected insurers only.

Longer is more expensive, but consider the risk
A 2-year benefit period might cost half as much as a to-age-65 policy. But if you develop a condition that keeps you off work for 5 or 10 years, the shorter policy leaves you without income for a long time. Think about what would happen to your finances if you could not work for an extended period, then decide how much of that risk you want to transfer to an insurer.

How much does income protection cost?

What Kiwis typically pay

Income protection is the hardest personal insurance to put a single price on, because occupation moves the premium more than anything else. QuoteHub does not publish an income protection price on this page: any number we showed you without knowing your job, your income and your health would be misleading rather than helpful. What we can set out is which levers move the price, and in which direction, so you know what to ask about.

Lever	Effect on premium	What to consider
Occupation class	The largest single factor	Manual and high-risk trades sit in higher classes than desk-based roles
Age at application	Rises steeply with age	Applying earlier locks in a lower entry point on stepped premiums
Waiting period	A longer wait lowers the premium	Match it to your sick leave and savings, not just to the price
Benefit period	To age 65 costs more than 2 or 5 years	A long benefit period is the part that protects against a career-ending event
Indemnity vs agreed value	Agreed value costs more where still available	Indemnity is assessed against income at claim time
Smoking status	Materially higher for smokers	Most insurers require 12 months smoke-free to reprice

What moves an income protection premium (direction of travel, not a price list)

What drives the price
Your occupation is the single biggest factor, because the claims risk on a physically demanding job is higher than on a desk job. After that, age has the next biggest impact, followed by your waiting period, benefit period, and whether you choose indemnity or agreed value. The practical consequence is that two people on the same salary can be quoted very different premiums, so an occupation-specific quote is worth more than any published average.

Tax treatment

How premiums and payouts are taxed

The tax rules for income protection in New Zealand differ depending on whether you have an indemnity or agreed value policy. Getting this right matters because it affects both what you pay in premiums and what you receive if you claim. The rules sit in the Income Tax Act 2007, and Inland Revenue set out how it applies to personal sickness and accident policies in QB 18/04 and QB 18/05.

Indemnity: tax treatment

Premiums are generally tax-deductible
You can claim premiums as a business or employment expense
Benefit payments are taxed as income (PAYE)
The insurer may deduct tax before paying you
Net benefit after tax is lower than the gross amount

Agreed value: tax treatment

Premiums are generally NOT tax-deductible
You pay premiums from after-tax income
Benefit payments are typically received tax-free
You keep the full benefit amount
Often preferred by self-employed for simplicity at claim time

Talk to your adviser or accountant
Tax rules can vary depending on your personal situation, how the policy is structured, and whether you are employed or self-employed. The above is general guidance only. We recommend getting specific advice from a qualified financial adviser or tax professional before making decisions based on tax treatment.

Who needs income protection?

It's not just for the self-employed

Anyone who relies on their income to pay the bills should at least consider income protection. But some groups have a particularly strong case for it.

Self-employed and contractors No employer sick leave to fall back on. If you stop working, your income stops immediately.
Mortgage holders The bank expects repayments regardless of your health. Income protection keeps the mortgage paid.
Young families With dependants relying on your income, a long illness could be financially devastating.
Tradespeople and physical workers Higher risk of injury and illness. If your body is your tool, protect the income it generates.
Primary income earners If the household depends mainly on one income, the financial impact of losing it is amplified.
Early-career professionals Limited savings and decades of earning ahead. Premiums are lowest when you are young and healthy.
Active and sporting lifestyles Higher exposure to injury. ACC covers accidents, but illness from overtraining or chronic conditions is not covered.
Business owners Your business may depend on you being there. Income protection helps keep personal finances stable while the business adjusts.

Not just a 'nice to have'
Think about it this way: if you could not work for 6 months, could you cover all your expenses from savings alone? For most Kiwis the answer is no. Income protection is not about worst-case catastrophising. It is about having a plan for a realistic scenario.

Common questions

Answers to the questions we hear most

What if I can do some work but not my usual job?

Most policies distinguish between "own occupation" and "any occupation" definitions of disability. Under an own occupation definition, you can claim if you cannot perform the main duties of your specific job, even if you could theoretically do a different, lighter role. Under an any occupation definition (less common and usually cheaper), you can only claim if you cannot do any job suited to your education and experience.

Many policies also include a partial disability benefit. If you return to work part-time or in a reduced capacity, the insurer pays a proportionate benefit to top up your reduced earnings.

Does income protection cover redundancy?

No. Income protection is for situations where you cannot work due to illness or injury, not where you lose your job. Redundancy is not a health event, so it is not covered. Some standalone redundancy insurance products exist in New Zealand, but they are separate from income protection.

Can I claim while receiving ACC?

It depends on the policy. Most income protection policies have an offset provision. If you are receiving ACC weekly compensation for an accident, the insurer will reduce your income protection benefit by the ACC amount. The goal is that your total payments (ACC + income protection) do not exceed your pre-disability income. However, some policies may pay a top-up to bridge the gap between ACC and your full insured benefit.

How much of my income can I insure?

Typically up to 75% of your gross income for an indemnity policy, or around 62.5% for an agreed value policy. Insurers set these limits to ensure you still have a financial incentive to return to work. Some policies also cap the total monthly benefit at a set dollar amount, though most New Zealanders insure well below the level at which those caps bite.

What happens if I change jobs?

You should notify your insurer if you change occupations, as your occupation class affects your premiums and cover. Moving to a lower-risk job could reduce your premiums. Moving to a higher-risk role may increase them, or in some cases the insurer may apply an exclusion. Your policy remains in force during a job change, so you do not need to reapply, but keeping your insurer informed avoids surprises at claim time.

Is income protection worth it if I have savings?

Savings help, but even a healthy emergency fund can be drained quickly. If you earn $80,000 a year and are off work for 12 months, that is roughly $80,000 of lost income. Very few households have that sitting in reserve. Income protection means your savings stay intact for other needs, while the insurer covers the ongoing income gap.

What pre-existing conditions are excluded?

When you apply, the insurer reviews your medical history. Pre-existing conditions may be excluded from cover, loaded (higher premiums), or accepted on standard terms. It depends on the condition and the insurer. Being upfront and thorough on your application is important. Non-disclosure can lead to a claim being declined later. An adviser can help you navigate this process and find the best outcome across different insurers.

Sources

Where the New Zealand figures and rules on this page come from

The documents below are the published sources behind the New Zealand figures and rules used in this guide. Each entry names the publisher, says what it supports, and records when we last checked it. Nothing on this page is a quote for cover, and where no reliable public source exists we have said so in the text rather than estimate a number.

ACC, Calculating weekly compensation for employees , ACC usually pays up to 80% of the income you earned before your injury. Supports the ACC replacement rate used throughout this guide. Checked 18 August 2026.
ACC, Changes to ACC client payments from 1 July 2026 , the gross maximum weekly compensation rate is $2,466.20 a week from 1 July 2026. This figure is reset every July, so check the current rate before relying on it. Checked 18 August 2026.
ACC, Injuries we don’t cover , ACC covers personal injury caused by an accident, not illness, sickness or conditions related to ageing. Supports every statement here about the illness gap. Checked 18 August 2026.
Stats NZ, Disability Survey: 2013 , the most common cause of disability for adults was disease or illness, at 42 percent, and 24 percent of the population was identified as disabled. This is still the most recent national survey of its kind. Checked 18 August 2026.
Inland Revenue, QB 18/04 and QB 18/05 (issued 23 February 2018) and the Income Tax Act 2007 , the published basis for how personal sickness and accident policies are taxed. Tax outcomes still depend on how your policy is owned and worded, so confirm yours with an accountant. Checked 18 August 2026.

If you think a figure here is out of date or wrong, tell us and we will check it. How we research and correct this material is set out in our editorial policy and methodology. Read this guide alongside our guides to life insurance, trauma cover, mortgage protection and health insurance.

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