Why should I get income protection insurance vs ACC?

Updated 22 September 2023

• What is income protection insurance? 
• What are the benefits of having income protection insurance? 
• Income cover and pre-existing conditions 
• What is ACC for?
• How does ACC affect income cover?
• Do I need life insurance?
• How to get income protection or life insurance 

Income protection insurance, ACC (Accident Compensation Corporation), and life insurance are all different types of insurance in New Zealand designed to provide financial protection when bad things happen in your life.   

It’s important to know what each type of insurance does and does not cover to decide what’s best for you. 

At a basic level, here are the differences between the three categories: 

• Income protection insurance replaces up to 75% of your pre-disability income if you are unable to work due to sickness or injury. 
• ACC is run by the government and helps to provide treatment, care, and services for anyone who is injured in New Zealand. Depending on the injury, ACC can assist with medical bills, special equipment, rehabilitation and up to 80% of your usual income, to a set limit.  
• Life insurance pays a lump sum to your estate or beneficiaries when you die. It does not cover you for illness, disability, or injury – most policies provide an early payment of the sum insured if you are diagnosed as terminally ill. 

Ultimately, the type of insurance that is best for you will depend on your personal circumstances, including your financial situation, health status, and the level of risk you are willing to take. 

What is income protection insurance? 

Income protection insurance (also known as income security insurance) provides cover if a sickness or injury stops you from being able to work and earn an income. Ideally, all financially independent professionals with financial goals and obligations should have it. 

It’s worth thinking about the lifestyle you and your family may need to live if you were unable to earn. This is why many people choose to insure their income, to allow their families to continue their discretionary lifestyle spending as well – what you like to spend on entertainment and leisure. 

What are the benefits of having income protection insurance?  

Income protection insurance is designed to safeguard one of your biggest assets: your future income. Income protection insurance provides you with a regular income if you are unable to work due to a sickness or injury. The policy pays out a percentage of your income and it can be tailored to your specific needs. 

It’s a mistake to think income protection insurance is designed for wealthy people – it’s for anyone who relies on their income to meet ongoing daily living expenses and maintain their lifestyle if they were unable to work.  

It can also help you continue building towards your financial goals. For example, if you’re saving for your first house or investing for your retirement, a sickness or injury that takes away your income for a period doesn’t need to be something that derails your life plans. With the right amount of cover, you should be able to continue making the regular savings contributions that will keep you on the road to the lifestyle you’ve planned. 

Whether to get income protection insurance is one of the most important conversations every professional person should have with their financial adviser, but one that gets neglected most often.   

Income cover and pre-existing conditions 

If you have a pre-existing condition or chronic illness, can you get income protection insurance? The answer is it depends. MAS Product Manager, Life and Disability Insurance Phil Belcher says in some cases a pre-existing condition will be excluded from your cover, while in others you may be able to be insured for it at a higher premium.  

“For example, if you had a recent knee injury, we might exclude your knee from your cover, or if you had high blood pressure, we might add a premium loading to offset the added risk,” he says. 

However, if you develop any chronic conditions once you have income protection insurance, you will be covered so long as you keep paying for your policy. 

“This is why it’s good to get income protection insurance while you’re young, fit and healthy because once you have it, you’re covered for anything that crops up over your lifetime,” Phil says. 

Conversely, if you have a condition excluded from your cover or a premium loading applied, and your health later improves, you may be able to get that removed, which reduces the cost of your policy. 

“For example, if you are a smoker, you have an added risk of certain diseases. But if you quit smoking, we can reassess your policy because you have eliminated that risk,” Phil says. 

What is ACC for? 

Accident Compensation Corporation (ACC) is a government-run insurance scheme that provides no-fault accident cover to all New Zealand residents and visitors to New Zealand. ACC provides a safety net for all citizens, residents, and temporary visitors in the event of an accident or injury.   

ACC covers medical treatment and rehabilitation costs related to accidents, as well as lost earnings if you are unable to work due to an accident.  

It provides comprehensive coverage for all types of accidents, including those that occur at work, home, on the road, or during recreational activities. This cover is provided regardless of who caused the accident, with victims entitled to receive compensation for their injuries.  

ACC provides a range of rehabilitation services to help injured people recover and return to work as soon as possible. These services may include physiotherapy, occupational therapy, psychological support, and more. 

ACC can provide up to 80% of your normal income, up to a maximum of $2,257.17 per week, if you are unable to work due to your injuries. This support is provided as a weekly payment to cover lost wages and may continue until the person is able to return to work. If you return to work but are unable to earn the same amount as you did before your accident, in some cases ACC will top up your earnings to your pre-accident level.   

For those who are permanently impacted by an accident, ACC provides New Zealanders with lifetime cover for all injuries sustained in New Zealand, regardless of whether the injury happened at work or during recreational activities. This means that people can have peace of mind knowing they will be covered for any future accidents. 

How does ACC affect income protection insurance? 

If you are entitled to ACC cover for an accident or injury, they will typically pay first. Your income protection insurance will consider this ‘other income’ and will ‘top-up’ the ACC payment to 75% of your pre-disability income to a maximum of your insured benefit. 

For example, if your income cover entitles you to receive $1,000 a week and you get $400 a week from ACC, your income protection insurance payment would pay $600 a week. 

Do I need life insurance?

Life insurance pays out a lump sum to your beneficiaries when you die, or if you are diagnosed as terminally ill with less than 12 months to live.  

It can replace your future income and provides financial support to help your loved ones cover expenses such as funeral costs, outstanding debts, and ongoing living expenses.  

If you have any dependents that rely on your income – such as a partner, children or elderly relatives – life insurance will mean your family can maintain the lifestyle they're used to, such as helping to pay the mortgage or for school fees. 

You might also need life insurance if you have a mortgage or consumer debt that would need to be repaid if you died. 

How to get life income protection or life insurance 

These are some simple steps to income protection insurance or life insurance. 

1. Determine your insurance needs: Before applying, think about how much cover you might need. This may depend on factors such as your age, health, financial situation, and family situation.
2. Talk to an expert: The next step in taking control of your financial goals is to seek financial advice from a professional. You can contact our friendly MAS Advisers on 0800 800 627 or by filling in a form on our website for advice. It’s important to remember that a MAS Adviser isn’t going to tell you how to live your life and where to spend your money. MAS Advisers are committed to helping you with your financial goals, but what you do with that advice always be your choice. 
3. Apply for insurance: If you’re happy with the MAS Adviser’s recommendations and want to proceed, you can then fill out and submit an application form. The underwriters then review this and may add loadings or exclusions. 
4. Review the documents: Once you’ve received your proposed insurance details, you have time to review and discuss anything you’re unsure about.  
5. Accept the insurance: Once you’re happy with the offer, you can accept it and you are covered.