Income protection insurance in New Zealand: what it is and how it works
Income protection pays a monthly amount while you cannot work because of illness or injury. It is not a lump sum: it replaces part of your income, starts after a waiting period set in the policy, and stops at the end of a benefit period, at recovery, or at a stated age.
Checked for wording and sources on 2026-09-16
What it pays
A regular monthly benefit, calculated from your income when the policy was taken out or when you claim, depending on the policy. Policies cap the benefit as a proportion of income; the proportion, and how income is defined, are set by the policy.
What triggers it
Being unable to work because of illness or injury, as the policy defines it. Definitions differ a great deal — some pay when you cannot do your own occupation, others when you cannot do any occupation you are suited to — and the definition is usually the single most consequential term in the contract.
Who receives it
You, or the policy owner, monthly, for as long as the claim is accepted and the benefit period runs.
How this kind of cover is usually put together
- A waiting period (also called a stand-down) runs before the first payment. A longer wait usually means a lower premium.
- A benefit period caps how long payments continue — a set number of years, or to a stated age.
- Policies commonly offset the benefit against other income you receive while on claim, which is where ACC matters.
- Underwriting looks at health, occupation and income, and self-employed income is usually evidenced differently from salaried income.
What it is not
- It is not redundancy or unemployment cover. Losing a job is not the trigger; being unable to work through illness or injury is.
- It is not ACC, and it is not a replacement for ACC. See [ACC and income protection](/guides/acc-and-income-protection).
- It does not pay a lump sum on death — that is life cover.
- It is not automatic: a claim is assessed, usually with medical evidence, and often reassessed while it runs.
What moves the price
- Your occupation, and how the insurer classes its risk
- The monthly benefit you choose
- The waiting period — longer usually costs less
- The benefit period — longer usually costs more
- Your age, health and whether you smoke
- Which definition of disability the policy uses, and any options attached
We publish no premium figures for this or any other cover on this site. See what cover costs for why, and for what you can do instead.
Where this fits in the calculator
Income protection is the kind of cover that lines up with the income line in the calculator — but it pays monthly while you are alive, where life cover pays once, on death.
Questions
If I already have ACC, do I need income protection?
That is a question about your own situation, so it is one for a licensed adviser rather than for us. What we can say in general is that ACC cover and income protection are triggered by different things: ACC is about injury, and illness is outside it. The detail is in ACC and income protection.
What is a waiting period?
The time between becoming unable to work and the first payment. You cover that gap yourself, from sick leave, savings or ACC if it applies. Waiting periods are chosen when the policy is set up and they change the premium.
Does it pay if I am made redundant?
Not as a rule. Income protection responds to illness or injury. Some insurers sell separate redundancy cover, with its own terms and its own limits. Check what the document you hold actually covers.
Is the benefit taxed?
Inland Revenue's page on insurance payouts says that generally insurance payouts are excluded income, and then says of an income protection payout: “As this amount is to replace lost income, it's generally taxable - however, you should check the exact terms of your insurance policy to make sure.” That is IRD's wording, read on 16 September 2026, and how it applies to your policy is a question for IRD or an accountant.
Related
Not financial advice. We are not financial advisers and we give no advice. Introductions are not open yet: we have no referral agreement in place, so we are not passing anybody's details to anyone. The page below tells you how to find and check a licensed adviser yourself. Read the disclosure.
Everything above describes a kind of cover in general. It is not a recommendation about a particular policy, insurer or amount for you, and it does not take your circumstances into account. See the disclosure for the law this site works to.