If your salary direct deposit stopped tomorrow, then how long would you be able to cover the expenses of the house, food, car, power and kids’ school fees?
Often, for most New Zealanders, it would not take long at all for the tough times to come. That’s exactly why income protection insurance exists. It’s designed to replace part of your income if illness or injury prevents you from working, helping you keep your household stable while you focus on recovery.
Your Income Keeps Flowing When You Can’t Work
Nobody wants to be laid off due to health issues or accidents. Yet it happens to millions across the globe every day. And when it does, the bills don’t stop. The income protection insurance is the one that acts as a financial safety net, providing you with a substitute for your pre-tax income to the tune of up to 75% for the period you cannot work due to illness or injury.
Your needs are still being catered for, i.e. in the case of mortgage or rent, groceries, fuel, school fees, and daily living costs. Rather than stressing about how to get by, you can simply focus on your recovery.
For instance, if your annual income is $80,000, then depending on the insurance company and the policy, plus the tax offsets, your monthly payout could be about $5,000 after tax.
Why it matters:
Even small differences in income can aggravate a person financially in the long run. One might not sense the impact of being behind on a few payments at first, but gradually it will impede your ability to save, take loans, or may even force you to dip into your emergency fund. On the other hand, income protection makes sure that the cash flow is constant, thereby avoiding the loss of financial stability overnight.
It Fills The Gap ACC Doesn’t
Here’s one of the biggest misconceptions about income protection in New Zealand: many people believe ACC covers everything. It doesn’t.
ACC is only for accidents. In the event of an accident or workplace injury, you will get support from ACC. However, if your ailment is due to a disease, stress, chronic pain, or any non-accident-related reason, then it is entirely up to you to bear the loss.
That’s where income protection comes in. It covers you for illness-related and non-accidental disabilities that ACC won’t touch.
Example:
If you develop cancer or suffer a mental health condition that takes you off work for months, ACC can’t help. Income protection will provide regular monthly payments until you’re back on your feet or your benefit period ends.
You Can Customise Your Cover to Fit Your Budget
Not every Kiwi’s life looks the same, and neither should their insurance. Income protection allows the policyholder to determine the conditions that are compatible with his/her lifestyle, risk tolerance, and budget.
You get to choose things like:
- Waiting period: What is the duration before the payments commence? The standard options are 4, 8, or 13 weeks long. A longer wait lowers your premium.
- Benefit period: How long will you be receiving the payments? For instance, 2 years, 5 years, or until retirement age, which is either 65 or 70, depending on the insurer.
- Cover type: A small number of insurers allow for agreed value (based on your income when you take out the policy) or loss-of-earnings cover (computed based on income at claim time).
- Add-ons: You can add benefits like childcare support, mental health top-ups, or inflation indexation.
Example:
A tradie with good savings might choose a 13-week waiting period and a 2-year benefit period to keep premiums lower. Meanwhile, a corporate professional with dependents might pick a 4-week wait and cover to age 65 for maximum stability.
It Supports Your Recovery, Not Just Your Bills
Income protection is more than a money machine. Many modern NZ insurers now include rehabilitation and return-to-work benefits in their policies.
This could include:
- Financial coverage for upskilling if the previous job is not an option for you anymore.
- Programs for physical rehabilitation or physiotherapy treatment.
- Partially disabled at work scenarios, if you can go back only for a few hours a day.
- Disability that is retrievable clauses, thus you are not obliged to wait for the same duration again if the same problem occurs.
Example:
A schoolteacher recovering from a back injury might start with part-time hours. Her policy continues paying part of her benefit until she’s back full-time, easing her back into work without financial anxiety.
It’s Crucial If You’re Self-Employed
When you’re self-employed, you are your business. No employer sick pay, no HR department, and no safety net if you can’t work.
Income protection can literally save your livelihood. It replaces your personal earnings if you’re too unwell to work. You can still pay yourself, cover your overheads, and keep your business alive while you recover.
Example:
A self-employed builder breaks a leg on-site. With income protection, he still receives monthly payments until he’s able to work again. Without it, he’d face months with zero income and ongoing business costs.
Bonus:
Self-employed Kiwis can often claim their income protection premiums as a tax deduction (depending on policy structure and tax treatment). That makes it even more valuable, a business expense that doubles as a financial safeguard.
It Can Be Tax-Deductible
A few types of personal insurance qualify for tax relief, but income protection can.
If you cover premiums on your own (outside of KiwiSaver or a group plan) and the benefits are subject to income tax, your premiums could be considered tax-deductible.
In that case, a portion of your premium could be claimed back on your annual tax return thus further reducing the total cost of your insurance cover.
Example:
For instance, a payment of $1,000 per year for income protection with a 30% marginal tax rate would allow one to effectively save $300 at the end of the tax season.
Important note:
Tax regulations depend on the way your policy is adopted. Always check the specifics with your tax consultant or financial advisor.
Nevertheless, the tax benefit still differentiates income protection from life, trauma, and TPD insurance, which in most cases are not tax-deductible. It’s one of the few ways to protect your income while also improving your tax position.
It Protects Your Lifestyle And Long-Term Goals
On the other hand, a long-term illness not only drains your finances but also might cause a disruption to your life's plan. A good income protection plan guarantees that you will not have to give up your lifestyle or future plans because of financial constraints even if you are going through rough times.
Think about what your income supports:
- Your family’s home and mortgage
- Your children’s education
- Loan repayments and financial commitments
- Retirement savings and investments
- Everyday comfort and stability
When you lose your income, all those things are at risk. Income protection keeps them intact.
Here are seven key benefits of income protection insurance, explained in simple terms for everyday New Zealanders.
A 40-year-old parent with a mortgage and two kids gets seriously ill and the whole family needs to support the patient for one year. Luckily, the income protection pays the mortgage, children's schooling goes on without interruptions, and the family does not have to move or sell their house.
That’s the real value: not luxury, but continuity. It gives you the best chance to recover without rewriting your entire life.
Common FAQs about income protection (NZ)
Q. Does income protection cover redundancy?
Ans : Generally, no. Standard policies are for illness and injury. Some insurers offer redundancy as an optional extra for a limited payout period.
Q. How much can I insure?
Ans : Usually up to 75% of your gross income, depending on the insurer and occupation.
Q. How do I choose a waiting period?
Ans : Base it on your savings buffer. If you have three months’ expenses saved, a 13-week wait may be fine. If not, go shorter.
Q. Can I combine this with other insurance?
Ans : Yes. Many Kiwis pair income protection with life or trauma insurance for full coverage — life for death, trauma for critical illness, and income protection for recovery periods.
Q. Who offers income protection in NZ?
Ans : The main companies of the market are AIA, Partners Life, Asteron Life, Chubb Life, nib and Fidelity Life. Every single one offers different options for benefits and prices, thus comparing is worth it.
Final Thoughts
The earning capacity you have is the most significant financial asset you possess. It is your current and future secured source. If that income ceased, even for a short time, the effect would be felt in every area of your life, from your housing to your long-term aspirations.
Income protection insurance guarantees that in case of an unexpected occurrence, there will still be money coming in, bills will still be paid, and your healing process will not affect the stability of the situation. It is about being free: the freedom of having the whole health issue focus and believing that the financial aspect is already taken care of.
Ready to get covered?
Whether you’re an employee, contractor, or business owner, we’ll help you compare the top NZ insurers and tailor a plan that fits your life. Talk to NZ Insurances today.
