Income protection vs mortgage protection — what's the difference, and do you need both?

These two types of cover get sold side-by-side, often in the same conversation, and are routinely confused. They overlap, they conflict in places, and most kiwi households genuinely only need one of them as the primary plank. Here's the honest breakdown.

Income protection — what it actually does

Income protection pays a monthly benefit (usually around 75% of pre-disability income) while you're unable to work due to illness or injury, after a chosen waiting period (commonly 4, 13 or 26 weeks). Benefit period varies from 2 years through to age 65. It's the closest thing to 'salary continuance' the NZ market offers.

Agreed-value vs indemnity — the most-missed detail

Agreed-value: the benefit amount is locked in at policy inception and paid regardless of your circumstances at claim time. Indemnity: the benefit is calculated from your income at the time of claim — meaning a recent business downturn, parental leave or career change can drastically cut what you receive. Self-employed clients should almost always pay the small premium uplift for agreed-value. PAYE clients on stable salaries can usually accept indemnity.

Mortgage protection — what it actually does

Mortgage protection (sometimes called 'mortgage repayment cover') pays a monthly benefit specifically intended to meet your mortgage repayments while you're unable to work. The benefit is generally capped at the lower of your actual mortgage payment or a stated dollar figure. Cheaper than income protection because the benefit is structurally smaller.

Where ACC fits in

ACC pays earnings-related compensation if you're unable to work due to an accident — at 80% of pre-incapacity income, with no waiting period beyond the first week. Crucially, ACC does not cover illness. So heart attacks, cancer, multiple sclerosis, depression — none of those generate ACC payments. The most common claim trigger on income-protection policies is, in fact, illness-driven, which is why private cover matters in NZ even with ACC in place.

Do you need both?

For most kiwi households, the right answer is one comprehensive income-protection policy, because it covers your full income (not just the mortgage payment) and continues if you sell the house, pay off the mortgage, or change debt structure. Mortgage protection has its place where budget is genuinely tight and the mortgage payment is the only thing you'd struggle to cover — but it leaves your wider household costs unprotected.

Common NZ structures we see work well

• Single PAYE earner, family with mortgage: income protection (indemnity, 13-week wait, to-65 benefit) — covers full salary, simple to claim on, future-proof if you change roles.
• Self-employed couple: income protection (agreed-value, 4-week wait, 5-year or to-65 benefit) on each partner — agreed-value matters because business income fluctuates.
• Tight household budget, primary worry is the house: mortgage protection only — cheaper, narrower, but better than nothing.
• Two earners, one solid PAYE and one variable: income protection on the variable earner (it's where the volatility is), top-up term life on the PAYE earner.

What to ask a broker

Ask for a quote on full income protection first, before you ask about mortgage protection. Get the agreed-value vs indemnity decision documented in writing. Make sure the waiting period matches your sick-leave runway. And confirm whether the policy has the 'own occupation' or 'any occupation' definition of disability — own-occupation is meaningfully better but priced higher, and worth it for most professionals.