Income protection vs mortgage protection in New Zealand
Income protection replaces part of your income while illness or injury stops you working. Mortgage protection is narrower: it targets the home loan, either as a lump sum sized to the balance or as cover for the repayments. The difference that matters most is what the money is for, and who controls it.
Updated 2026-09-16 · last checked against its sources on that date
Written by Life Insurance NZ. No personal byline: the organisation is the author.What is the difference between income protection and mortgage protection?
Income protection pays you a monthly benefit while illness or injury stops you working, so it covers the mortgage and everything else. Mortgage protection is aimed at the home loan alone — either a lump sum sized to the balance, or the repayments for a period — and it may pay the lender instead of you.
| Income protection | Mortgage protection | |
|---|---|---|
| What it pays | A monthly benefit, a proportion of income set by the policy | Either a lump sum sized to the loan, or the loan repayments for a period |
| What triggers it | Being unable to work through illness or injury, as the policy defines it | Death, or inability to work, or sometimes redundancy — depending which product it is |
| Who gets the money | You, or the policy owner | Usually the policy owner; sometimes the lender, where the policy is assigned to them |
| What it covers | Your income generally, so it covers the mortgage and everything else | The mortgage, and only the mortgage |
| Ends when | Recovery, the end of the benefit period, or a stated age | The loan is repaid, the term ends, or the benefit period runs out |
The practical distinction: income protection is broad and pays you; mortgage protection is narrow and may pay the lender. Neither of those is better in the abstract. Which suits a particular household is advice, and this site does not give advice.
What does ACC cover, and where does it stop?
ACC covers personal injury caused by accident, not illness. Income protection sits on the other side of that line, which is why the two are always discussed together. ACC's own wording on what it covers, what it pays and when payment starts is quoted below, unparaphrased, with its source beside each quote.
ACC matters here because income protection policies commonly offset the benefit against other income received while on claim, and because a great many people assume ACC covers more than it does.
“We cover personal injuries caused by accidents, including mental injuries linked to those events. We are unable to provide support for conditions that are not injury related, such as general illness or age-related health concerns.”
— ACC, “Injuries we don't cover”, last published 13 August 2025
In other words: accidents yes, illness no. Cancer, a heart attack, a stroke or a mental health condition unconnected to an accident are outside ACC. That gap is the single most common reason income protection is discussed at all.
What ACC pays, and when
“You may get up to 80% of the income you earned before your injury, before tax and deductions.”
— ACC, “Calculating weekly compensation for employees”
“If you qualify, you usually became eligible for weekly compensation on day 8 after your injury. If this isn't your first time off work for the same injury, or it's for approved surgery, payment may be available straight away.”
— ACC, “Weekly compensation”
There is a second 80% that is easy to confuse with the first. For a work injury, ACC's page for employees says of the first week:
“If you're an employee or shareholder-employee and your injury happened at work, your employer must pay you 80% of your usual pay, for the first week.”
— ACC, “Weekly compensation for employees”
ACC also notes that a different long-term rate basis applies after the first four weeks. If your own claim is the question, ACC is the one to ask — we are quoting their published pages, not advising on your entitlement.
How do you tell which kind of mortgage protection you were offered?
Look at the policy schedule for what it pays. A sum insured, paid once, is lump-sum cover — life cover with the amount set to the loan. A monthly benefit with a waiting period is repayment cover, which behaves like income protection narrowed to the loan. Those two lines settle it.
Cover offered at loan settlement is often described as mortgage protection without saying which kind it is. Two things on the policy schedule settle it:
- A sum insured, paid once. That is lump-sum cover — life cover with the amount set to the loan.
- A monthly benefit with a waiting period. That is repayment cover, and it behaves like income protection narrowed to the loan.
Also worth finding: whether the lender is recorded as an interested party or the policy is assigned to them, because that decides who controls the money; whether the cover reduces as the loan reduces, and whether the premium reduces with it; and what health questions were actually asked, because cover arranged quickly with few questions often carries broader exclusions instead.
Is an income protection benefit taxed in New Zealand?
Inland Revenue publishes a page on insurance payouts that deals with income protection specifically, and its wording is quoted in full below. We have not paraphrased it into a rule of our own, because the treatment turns on the exact terms of the policy in front of you.
“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.”
— Inland Revenue, “Insurance payouts”, last updated 28 April 2021
That is IRD's wording about income protection payouts specifically. How it applies to a particular policy is a question for Inland Revenue or an accountant.
Questions
If ACC covers me, do I need income protection?
Whether you need it is advice about your situation, so we cannot answer it. What is on the record is that ACC covers injury from accidents and says plainly it does not support conditions that are not injury related, such as general illness. What that gap is worth to you is the conversation to have with a licensed adviser.
Does mortgage protection pay off my mortgage automatically?
Only if the policy directs the money to the lender. Otherwise it pays the policy owner, who decides what to do with it. Check whether the lender is named on the policy.
Can I have both?
In general, yes — they are separate products. But income protection policies commonly cap the total benefit as a proportion of income and offset other income received while on claim, so two policies do not necessarily pay twice. The policy wording decides.
Is mortgage protection based on your income?
The repayment kind usually is, in part: insurers generally limit the monthly benefit by reference to both the loan repayment and your income before the claim, and the policy states how. The lump-sum kind is sized to the loan balance instead. The policy schedule says which you have.
Is mortgage protection required to get a home loan?
No. It is not a legal requirement and it is not a condition of lending in New Zealand. It is a separate product you choose whether to buy.
Sources
- ACC, Injuries we don't cover
- ACC, Calculating weekly compensation for employees
- ACC, Weekly compensation
- ACC, Weekly compensation for employees
- Inland Revenue, Insurance payouts
Read on 2026-09-16. If a source and this page disagree, the source is right.
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