The short answer
Income protection pays you a monthly benefit — commonly up to about 75% of your income — while illness or injury stops you working. You choose a wait period (how long before payments start) and a benefit period (how long they continue: two years, five years, or to age 65).
Critically, it covers illness, which is exactly what ACC does not.
Last reviewed 2026-07-30
The two dials that set the price
Almost the entire cost of an income protection policy is decided by two numbers, and understanding them lets you buy the cover you need instead of the cover you were quoted.
Wait period (stand-down)
Options typically run 4, 8, 13, 26, 52 or 104 weeks. Every step you lengthen it, the premium falls — often sharply. The right answer is not "as short as possible", it is "how long can my household actually self-fund?" If you have sick leave, annual leave and three months of savings, buying a 4-week wait means paying every month for cover you would not use.
Benefit period
Two years is cheap. To age 65 is expensive. But the risk being insured is not "off work for a while" — a two-year claim is survivable for most households. The catastrophic scenario is being unable to work again at all, and that is precisely the one a two-year benefit period does not cover. If budget forces a choice, a longer wait period with a longer benefit period is usually a better-shaped policy than the reverse.
Indemnity vs agreed value
Indemnity policies prove your income at claim time. Agreed value policies establish it at application, so what you were earning when you applied is what gets paid. Agreed value costs more and is far more valuable to anyone with variable income — contractors, business owners, people on commission — because a bad trading year before a claim can gut an indemnity payout. Agreed value has become harder to obtain in this market, which is a reason to look at it sooner rather than later if it fits you.
How it interacts with ACC
Most income protection policies offset against ACC: if ACC is paying you, the insurer tops you up to your covered percentage rather than paying on top. People sometimes read this as being ripped off. It is the opposite — the offset is why the premium is affordable, and the cover is doing its real job in the situation ACC is absent entirely, which is illness.
The risk is not a bad month. It is a year that turns into three.
Mortgage protection is not the same thing
Mortgage repayment cover replaces your repayments; income protection replaces your income. Mortgage cover is cheaper and simpler, and for a stretched first-home buyer it can be the sensible starting point. But groceries, power, childcare and insurance do not pause because you are ill. Full comparison →
If you are self-employed
Income protection matters more here than anywhere, for three reasons: no sick leave, no employer scheme, and an ACC entitlement based on your last filed return rather than what you actually live on. If you are a contractor and have never looked at ACC CoverPlus Extra, that is a free-ish fix worth making before you buy anything. More on self-employed cover →
Work out your own runway and benefit with the income protection calculator.
Common follow-up questions
Is income protection tax deductible in New Zealand?
Generally, if the premiums are deductible then the benefit is taxable, and if premiums are not deductible the benefit is usually paid tax-free. Policies are commonly structured one way or the other and the maths differs by marginal rate. This is a genuine accountant question rather than something to guess at from a website.
Will it pay if I can still do some work?
Most policies include a partial or "proportionate" benefit for when you return part time or at reduced capacity. Definitions of disability matter here: "own occupation" (you cannot do your job) is much stronger than "any occupation" (you cannot do any job you are suited to). Which definition you hold is one of the most consequential lines in the policy.
Does it cover mental health?
Usually yes, though some insurers apply limits — a shorter benefit period for mental health claims is common, and pre-existing mental health history is frequently excluded or loaded. Given mental health is a leading cause of long-term work absence, it is worth asking about explicitly rather than reading the summary.
What if I lose my job — does it pay then?
No. Income protection covers inability to work due to illness or injury, not redundancy. Redundancy cover is a separate and much more limited product.
Keep reading
This page is general information about how insurance works in New Zealand. It is not regulated financial advice and it does not take your situation into account. For advice about your own cover, talk to a licensed financial adviser.