Income protection, explained.

Income protection pays you a regular monthly amount if you can’t work because of illness or injury. It replaces part of your income while you’re off, so the mortgage and the groceries keep getting paid.

Three settings define how it works. The wait period is how long you’re off before payments start, often four, eight, thirteen or twenty-six weeks. The benefit period is how long payments continue, which might be two years, five years, or through to 65. And the monthly benefit is how much you receive.

Payments generally stop when you return to work, when the benefit period ends, or when you reach the policy’s end age.

Because it pays ongoing income rather than a lump sum, it’s the cover that handles a long illness rather than a sudden shock.

It’s typically one of the more expensive covers, because the risk of being unable to work for months is considerably higher than the risk of dying young.

Cost is driven by your age, health, smoking status, how much you’re insuring, and crucially your occupation. Someone on a roof is priced very differently from someone at a desk.

The settings give you real control. A longer wait period cuts the premium meaningfully, and if you’ve got savings or sick leave to bridge the first few months, that’s an efficient trade. A shorter benefit period costs less than cover through to 65.

We’d rather show you actual quotes across a few structures than give you a number here that turns out to be wrong for you.

ACC covers accidents. It does not cover illness.

That single distinction is the biggest gap in most New Zealanders’ financial safety net, and most people don’t know about it until they need to.

If you fall off a ladder, ACC generally steps in. If you’re diagnosed with cancer, have a stroke, develop heart disease, or are laid low by a serious mental health condition, ACC does not pay you anything. And illness, not accident, is what stops most people working for extended periods.

ACC also pays a percentage of your earnings rather than all of it, and self-employed people have their own set of complications around how earnings are assessed. So the question isn’t really whether you have ACC. It’s what happens to your household if you’re off work for eight months with something ACC doesn’t touch.

Insurers generally cap cover at a proportion of your income, commonly around 75%, though the exact limit and how it’s calculated varies by insurer and policy type.

The cap exists deliberately. If being off work paid the same as working, there’d be less reason to get back to it, and insurers price for that.

For self-employed people, “income” usually means what you actually draw plus certain business elements, and getting this right at application time matters. Insuring an amount you can’t later substantiate is a fast route to a reduced claim.

If your income varies a lot, tell your adviser. There are structures designed for exactly that.

The general principle in New Zealand is that deductibility follows taxability. Where the monthly benefit would be treated as taxable income when paid, the premiums are typically deductible. Where the benefit is paid tax-free, the premiums generally aren’t deductible.

This means the answer depends on how your policy is structured, and different products are built differently on purpose.

It genuinely affects the real cost of cover, so it’s worth understanding before you decide. We’ll explain how it applies to what we’re recommending, and for anything beyond that, your accountant is the right person.

Agreed value fixes your benefit amount when you apply, based on income you prove at that point. If you claim later, you get that amount regardless of what you’re earning at the time.

Indemnity value assesses your income at claim time, usually against your recent earnings. It’s cheaper, and it carries the risk that if your income has dropped, so does your payout.

Agreed value suits people with variable income, the self-employed, and anyone who wants certainty about what they’d actually receive. Indemnity suits people with stable, easily evidenced salary income who want a lower premium.

Product availability has shifted over the years and not every insurer offers every structure. Worth checking what’s actually on the table.

The wait period should roughly match how long you could keep the household running on your own resources. Add up sick leave, annual leave, savings and any income your partner brings in, and see how many weeks that buys you.

Going from a four week to a thirteen week wait can reduce the premium substantially. If you’ve got a solid emergency fund, that’s usually money well saved.

Benefit period is a different question: how long could you cope without your income? A two year benefit covers most illnesses and injuries, since most people either recover or are assessed as permanently disabled within that time. Cover through to 65 protects against the scenario where you never work again, which is rarer and more devastating.

If you’re choosing between a shorter wait and a longer benefit period on a limited budget, a longer benefit period usually protects against the bigger disaster.

Yes, and it often matters more for self-employed people, because there’s no employer sick leave sitting behind you.

The complication is proving income. Insurers usually want financial statements or tax returns, and what counts as your income can include drawings, salary and sometimes a share of business profit. If your business is new or your income is lumpy, this needs care.

Agreed value cover is often worth a look for exactly this reason, since it locks the benefit in up front rather than assessing it during a claim when your income may have already dropped because you’ve been unwell.

There are also products designed to cover fixed business overheads separately, which can be relevant if you’ve got premises or staff.

Generally yes. Mental health conditions that leave you unable to work are typically covered under standard policies, and they make up a meaningful share of claims.

Two things to be aware of. If you have a history of mental health treatment when you apply, some insurers will apply an exclusion or a loading. And some policies limit how long they’ll pay for a mental health claim compared with a physical one.

Terms vary between insurers, and this is an area where the differences are significant.

Please don’t let a history put you off applying. Being declined by one insurer doesn’t mean being declined by all of them, and an exclusion on one thing still leaves you covered for everything else.

Standard income protection covers illness and injury, not redundancy. If you lose your job for business reasons, it generally won’t pay.

Some insurers offer redundancy cover as a separate product or an add-on. It usually comes with tight conditions: a stand-down period after you take it out, a requirement that the redundancy is genuine and involuntary, and typically a short benefit period of a few months.

It’s a much narrower product than income protection and priced accordingly. Whether it’s worth it depends a lot on your industry and job security.