Income protection insurance

How we help

• Set the right benefit: matched to your income and what your household needs.
• Choose wait and benefit periods: balancing cost against your savings and sick leave.
• Pick the right type: agreed value or indemnity, especially important if you’re self-employed.
• Fit it with other cover: mortgage protection, trauma and ACC.

ACC versus income protection

Wait periods and benefit periods

The wait period is how long you’re off work before payments start, commonly 4, 8 or 13 weeks, or longer. A longer wait period lowers your premium, so it often makes sense to match it to your sick leave and savings.

The benefit period is how long payments can last, such as 2 years, 5 years or up to age 65. Longer benefit periods cost more but protect against the most serious, long-term situations.

Agreed value or indemnity?

Sources and further reading: ACC: what ACC covers

How much income can I protect?

Most NZ policies let you cover up to about 75% of your income before tax. That leaves a gap between your benefit and your pay, which keeps premiums affordable and gives you a reason to return to work when you can. Self-employed people usually have their income averaged over a 12-month period from the last two to three years, so a quiet year doesn’t undo their cover.

Total and partial disability

• Total disability: under most policies, you’re totally disabled if illness or injury stops you doing an important part of your job, or working more than about 10 hours a week, and you’re under medical care.
• Partial disability: if you can work, but you earn less than 75% of what you used to, or work fewer hours, a reduced benefit is paid based on what you’ve lost.

This matters because many people return to work gradually after an illness or injury. Partial benefits keep the money coming while you build back up.

What’s usually included?

When we reviewed the policy wordings from the insurers we compare, most income protection policies include:

• Recurring claims: if the same condition comes back within 12 months, you don’t have to serve the waiting period again.
• Rehabilitation and retraining: help with approved programmes and equipment to get you back to work.
• Childcare support: commonly up to $800 a month per child under 14 while you’re disabled.
• Increases without health questions: raise your cover as your income grows, often up to 10% a year until about age 55.
• Pausing cover: put cover and premiums on hold for up to 12 months for things like parental leave or redundancy.

Mental health and back claims

Mental health conditions such as stress, anxiety and depression are a common reason people can’t work. Standard income protection usually covers them. Some insurers let you limit mental health claims, and sometimes back claims, to a maximum of two years in exchange for a lower premium. It can save money, but it’s a real trade-off, so we’ll talk it through with you.

Is income protection taxable?

It depends on the type of cover. With indemnity cover, the benefit is generally taxed as income and the premiums are generally tax deductible. With agreed value cover, the benefit is generally not taxed and the premiums aren’t deductible. Check with your accountant if you’re self-employed or the cover is owned by a business.

What isn’t covered?

Common exclusions include intentional self-injury, criminal activity, and the normal effects of pregnancy or childbirth (complications lasting more than 90 days are usually covered). Income protection also doesn’t cover job loss. It pays when illness or injury stops you working.

This is general information only and isn’t personalised financial advice. Everyone’s situation is different, so please talk to one of our advisers before making decisions about your insurance.