Life doesn’t always go according to plan. One moment, you’re at work, saving up, or planning the next family vacation. Next, an illness or injury might stop everything in its tracks. When your pay stops, the bills don’t.
That’s where income protection insurance steps in. In case you become ill or injured and cannot work, the insurance will provide you with a monthly replacement income, while daily expenses will be covered, such as rent or mortgage, groceries, power, phone bills, school fees, and so on.
ACC vs Income Protection: What’s The Difference?
Kiwis make a big mistake thinking that ACC covers them entirely, but the assumption can cause them unnecessary stress. The ACC (Accident Compensation Corporation) is only meant for claims due to accidental injuries like sprains, fractures, or car crash recovery. It does not pay for diseases like cancer, depression, or any long-term medical conditions like arthritis.
Income protection insurance fills that gap. It covers both injury and illness, whether it happens at work or not, giving you an income stream when you’re too unwell to work. That’s the key difference: ACC helps after accidents, income protection helps when life happens.
How Income Protection Works
Income protection isn’t complicated once you break it down. Here’s how it works in simple terms:
- You choose how much of your income to cover. Most insurers allow up to 75% of your pre-tax income.
- You pick a waiting period. The period of time after you have ceased working, during which you will be waiting for the payments to start, is your waiting period. The most common options are 4, 8, or 13 weeks.
- You choose a benefit period. This is how long you’ll continue receiving payments: 2 years, 5 years, or even until age 65, depending on your policy.
- You receive regular payments. Once your claim is approved, payments arrive monthly to help you stay afloat until you recover or your benefit period ends.
- You focus on recovery. The cover is designed to replace lost income, so you can keep up with commitments without dipping into savings.
- It’s flexible. You have the option to customize your cover so that it is best suited to your needs. You can have shorter waiting periods for quicker access or longer benefit periods if you prefer extended peace of mind.
What’s Covered (And Common Extras)
Every insurer is slightly different, but most income protection policies in New Zealand cover:
- Illnesses: These may include both physical and mental health conditions.
- Injuries: No matter where they occur, whether at work, on the field, or at home.
- Partial disability: In case of returning to work part-time, your income may still be supplemented.
And depending on your insurer, there are optional extras worth looking into:
- Rehabilitation benefits to help cover physiotherapy or retraining.
- Bed confinement or hospital stay benefits that kick in while you’re still in recovery.
- Recovery support for mobility aids or home modifications.
- Premium waivers during redundancy, so you’re not paying for cover while you’re between jobs.
These extras are designed to make recovery easier, financially and emotionally.
What’s Not Covered
Like all types of insurance, income protection comes with exclusions. These usually include:
- Redundancy or voluntary resignation. Income protection only covers health-related loss of income.
- Intentional self-harm or illegal activity.
- Normal pregnancy, unless complications continue for more than 90 days after giving birth.
- Pre-existing conditions, depending on your insurer’s policy.
The best way to overcome unexpected issues is to either thoroughly read your policy or consult an adviser who can clarify the matters regarding your situation.
Key Choices That Affect Your Premium
Several factors determine the cost of income protection, and most of them are under your control.
- Income and Occupation: The more the income (or the more dangerous the job), the greater the cost of the insurance premium.
- Age and Health: Young, healthy Kiwis mostly pay less.
- Waiting Period: The longer you can hold off the cost, the lower your cost will be.
- Benefit Period: A longer payment period results in higher premiums.
- Extras and Add-Ons: More features usually increase the price.
Select a waiting period that is in line with your savings. If you’ve got a few months’ emergency fund, a longer waiting period could help you save on premiums. And don’t forget, if your income or job changes, update your policy. It keeps your cover relevant and prevents payout issues later.
Who Should Consider Income Protection (And When To Get It)
If you rely on your regular pay to keep your life running, income protection insurance is worth considering. You’ll benefit most if you:
- Are self-employed or a contractor without paid sick leave.
- Are the main earners in your family.
- Have financial obligations such as rent, mortgage, or loans.
- Would find it difficult to pay the bills if you were off work for a month or more.
What’s the right time to get covered?
- When you get a new job or start a business.
- When you purchase a house.
- When your family expands or your obligations change.
- When you leave a salaried job for freelancing.
The sooner you get a cover, the easier it is to hold on to the lower premiums and the long-term protection.
FAQs
Q. How Is Income Protection Different From Life Insurance?
Ans : Life insurance pays a lump sum when you pass away. Income protection provides monthly payments while you’re alive but unable to work due to illness or injury.
Q. Does ACC Cover Illnesses?
Ans : No, ACC only covers accidental injuries. Income protection fills that gap by covering sickness and other health-related conditions.
Q. Can Self-Employed People Get Income Protection?
Ans : Absolutely. In fact, self-employed Kiwis often rely on it the most since there’s no employer sick pay to fall back on.
Q. How Much Of My Income Can I Protect?
Ans : Typically, up to 75% of your regular pre-tax income.
Q. Is Income Protection Tax-Deductible In New Zealand?
Ans : In many cases, yes. Though it depends on your circumstances. Talk to a tax adviser to confirm.
Q. What Happens If My Income Changes?
Ans : Let your insurer or adviser know. Your premium and benefit amount can be adjusted to keep things accurate.
Protect What You’ve Worked For
Your ability to earn is your biggest financial asset, the foundation for everything else. Income protection insurance keeps that foundation strong, even when life takes an unexpected turn.
No matter if you are employed, self-employed, or running your own business, this kind of insurance can either lead you to financial stress or offer you peace of mind. It is not about being pessimistic; it is about being prepared.
Talk to NZ Insurances today. Our local advisers can help you compare policies from trusted New Zealand insurers like Partners Life, AIA, Chubb Life, Fidelity Life, and Asteron Life, so you can find the cover that fits your income, lifestyle, and goals.
