When I sit down with clients to talk through their financial situation, one of the questions I ask is, “What savings do you have, and how much of that would you want to spend if you couldn’t work for an extended period of time?”
The answer is usually the same to both questions: “Not a lot.”
“Okay, so in that situation, what of your normal expenses would you want an insurance company to start covering?”
Again, the response to this one is the same almost every time.
“Isn’t that what ACC is for?”
And the answer? “Yes, and no”.
Let me explain.
If you’re injured in an accident, ACC will generally cover up to 80% of your normal income while you recover. That’s great—if your time off work is accident-related.
But here’s the catch: according to a study by Stats NZ in 2013 only about 31% of all disabilities for adults (age 15–65) are caused by accidents.
The main cause of disability in NZ - covering nearly 42% of all cases - is illness. That’s things like cancer, mental health disorders and musculoskeletal problems like arthritis. In those situations, your income from ACC will be the same as the name of Jeremy Clarkson’s farm: “Diddly Squat.”
Your options are limited: maybe a sickness benefit, family support, or burning through your savings. That’s where income protection insurance becomes essential.
(Other main causes of disability, in case you’re wondering, are ageing, 28% and the remaining are conditions from birth.)
Income protection is designed to support you if you’re unable to work due to a health event, regardless of whether it was caused by an accident or not.
Here’s how it works:
Importantly, income protection is a contract between you and the insurer, so once it’s in place, the terms are locked in. ACC, on the other hand, is subject to government legislation, which can change over time.
Not quite. With income protection, you can tailor your cover to fit your budget and needs. You can typically insure up to:
Plus, many policies allow you to receive payments in addition to ACC, rather than having them offset. That means if you're off work because of an accident, you could receive both ACC and income protection, leaving you close to (or even at) your full income.
Higher-tier income protection policies often include extra features like:
The goal of income protection is simple: to ensure that no matter what happens to your health, you’re able to keep paying your mortgage, covering your bills, and feeding your family. In short, it protects your financial stability when your ability to earn is at risk.
So next time you hear someone say “Isn’t that what ACC is for?”, you’ll know: ACC helps with accidents, but income protection covers the rest—and the rest is where most of the risk lies.
