In basic terms, income protection insurance in New Zealand replaces a percentage of your income when you cannot work in your own occupation due to medical or injury reasons. 

It is designed to provide 75-80% of your in-hand earnings when you are disabled at claim time.

Most policies today have a range of options and different flavours. Fundamentally, there are two types: those you pay tax on at claim time and those you do not. 

The rules and approach around each one are a bit different which is where we come in as specialist advisers on protecting your income.

What are the types?

in simple terms, there are three flavours of income protection.

• Agreed Value: You prove the level of cover at application time to have more security at claim time that you will get paid.
• Indemnity Value is where you prove your loss of earnings at claim time, and it pays or replaces your income up to a certain level. Which runs the risk of not being able to if your employment and earnings situation has changed.
• Loss of Earnings: You prove your loss of earnings at claim time, and it pays a percentage of your lost earnings. Like indemnity, this option has risks at claim time, though it is usually a stronger option than the indemnity approach.

Over time Agreed Value has had tax assessible versions added, often looking like a combination of Loss of Earnings with an agreed level of coverage.

• Due to the mechanics of managing the tax aspect and the risk it represents at claim time, non-taxable agreed covers remain our preferred approach to providing your income security with disabilities.

What about ACC?

Yes, we also have ACC, which is quite unique to New Zealand. ACC replaces up to 80% of your personal taxable earnings if you are disabled in an accident and unable to work in any occupation.

You do need to keep in mind that 75% of white-collar occupation disabilities and 50% of blue-collar occupations do not involve ACC disability or weekly compensation claims. So the prevailing idea ACC has you covered is not as secure as you might like.

If you are self-employed, there are a couple of catches with ACC claims. Income split with your spouse isn't included in the 80% claim calculation. Also, because ACC pays your personal earnings, if you have business expenses that don't stop when you do, you will have a shortfall as ACC will not pay these either.

As an employee, you need to keep in mind ACC may require you to return to another occupation if you cannot return to your own occupation. This is subject to existing knowledge, experience or further training. With income protection, you can choose to return to work in a different occupation; it can't be forced upon you like ACC can.

In a disability situation where you have ongoing income or ACC payments, Income Protection policies can and do take this into account when your claim payment is made.

Mortgage Protection Insurance

Mortgage Protection is very similar to Agreed Value Income Protection, with some providers it is the same with one key exception if you have a mortgage, and a claim is paid, there are no offsets.

Can I have more of this than my Mortgage Payment?

With most providers, yes, up to 100% of your required monthly mortgage payment can be insured, and one will insure the mortgage payment you make, which could be much higher than the required minimum payment.

• If 55% to 75% of your income is less than your mortgage payment, you will already be able to get more with this approach than with standard income protection. 
• If 55% to 75% of your income is more than your mortgage payment, we can insure the difference on an income protection policy.

So I could end up with two policies?

Yes, this is possible, though with most insurance companies, it is two benefits on one policy, and they work together. 

We would counsel against having your income protection with more than one company as it can cause issues at claim time.

Ok so I’ve had a look around, and I have all of these quotes that don’t make sense to me:

This is something we often come across as different insurers use different language and advisers will give you various options. We can help you understand the different options and how they would affect your cover as well as provide you the research to assist with making the best decision for your cover.

Redundancy

All standard income protection policies do not cover job redundancy, only disability caused by an accident or illness. 

Redundancy Protection can be added at an additional cost and is subject to additional considerations. Our experience post Covid has been insurers are reluctant to offer this cover and many have removed redundancy benefits from their product range for new cover.

Other resources

Looking for other resources on income protection? 

• Our more extensive page on Income Protection
• Check out our blog section on income and mortgage protection 
• as well as our blog section on risk management

Where to from here?

If any of this has raised questions about your cover or the need for cover, please contact us. 

We would welcome the opportunity to clarify things for you so you have confidence the cover you have will do what you want it to.