Income protection insurance in NZ: where ACC stops and your risk starts

Many New Zealanders who stop working for six months or more are sick rather than injured. ACC pays up to 80% of your income if you fall off a ladder⁽²⁾ and nothing at all for a cancer diagnosis, a back that gives out over five years, or a breakdown, and its own exclusions list says so⁽³⁾.

The household most likely to be caught out is a couple in their late thirties with children and a mortgage approved on two salaries, who deferred the cover because the premium looked untenable.

Jamie Reynolds, a financial adviser at Naked Finance in Auckland, spends his weeks across the table from couples like this. Most of the time their situation calls for more cover than they have, but there are exceptions, like a couple paying $1,200 for life insurance they didn't need at all.

What ACC covers, and what it was built to leave out

Reynolds is careful not to knock the scheme, and so am I, because it's one of the few institutions that works well.

Jamie Reynolds, financial adviser at Naked Finance, says: "Let's establish first off that ACC is a really good thing."

The rules sit in the Accident Compensation Act. Injured in an accident and unable to work, you get weekly compensation of up to 80% of your pre-injury income, usually from the eighth day⁽²⁾. No other country has anything quite like it.

The catch is the word "accident". ACC's list of what it doesn't cover opens with illness, sickness and contagious disease, then runs through stress and emotional conditions (unless they're linked to a covered injury), conditions related to ageing such as arthritis, most hernias, and injuries that build up over time unless a work activity is causing them⁽³⁾.

Unexplained back pain that worsens over the years is the example ACC itself gives of something that in most cases is not covered.

Reynolds says: "ACC only covers you for accidents and injuries and does not touch you around illness, and that often catches people out. Also, as you get older, ACC will look towards degeneration as a reason not to pay."

He also reads the scheme's finances as a reason to expect it to get stricter rather than kinder.

Reynolds says: "The trouble is, because it's massively oversubscribed and we're seeing more and more applications declined, looking after yourself is becoming more and more of a requirement rather than just a good idea."

ACC's own numbers point the same way. Its 2025 Annual Report shows an outstanding claims liability of about $63.6 billion against assets of roughly $53.8 billion, a shortfall of around $9.8 billion, and the board calls the cost trend unsustainable⁽⁴⁾.

The Turnaround Plan launched in January 2026 targets shorter claims and faster return-to-work rates, which is the institutional way of saying fewer people supported for less time⁽⁴⁾.

So the events most likely to take you out of work for half a year are the ones ACC was designed to leave out, and the part it does cover is being trimmed. The question is who that leaves exposed.

The household running uncovered

There is one household type Reynolds sees more than any other, and it's the one where the maths is cruellest.

Reynolds says: "It's the ever-present quandary that the most expensive time is when you have young children and they are taking you out of work and leaving you with a lower income in the household. However, this is the time that if the proverbial hits the fan, you would really want the depth of cover that income protection gives you."

Anyone who has been near that household can describe it. Two incomes have become one and a half, or one, because somebody is on parental leave or working three days around daycare, while the mortgage was approved on both full salaries.

The premium for cover that would replace the main earner's income looks impossible when the monthly surplus has already gone on nappies and the car seat, so it gets parked until "things settle down". In practice that means when the youngest starts school, by which point the household has run four or five years with its single biggest risk sitting uninsured.

Nobody in that house was careless. They were tired, and the policy was the one bill that could be deferred without anyone ringing them about it.

The wider picture makes the deferral easier to understand. The Financial Services Council's Financial Resilience Index 2026 found that 59% of New Zealanders say money has affected their mental health, and the share who feel secure in their job has dropped from 85% in 2024 to 80%⁽¹⁾.

Households are more stretched than they were two years ago, so the premium is harder to find at the same moment the cover matters more, which brings up the obvious complaint about the price.

Why the premium is high, and what that tells you

Advisers hear it at every second kitchen table, and it's a fair complaint. Reynolds doesn't argue with it either, though he does turn it around.

Reynolds says: "Yes, it's expensive, but it's expensive for a reason. It's one of the most claimed-on insurances out there."

An insurer prices a policy on how often it pays, and income protection pays often, because the things that stop a person working for months at a stretch are common and mostly aren't accidents. Life cover, by comparison, pays once and only when you die, which for a healthy forty-year-old is a long way off and cheap to insure against.

The premium you're reluctant to pay is the market telling you, fairly bluntly, how likely you are to need the money. That makes the next question the hard one: how much of it do you need?

What the right amount looks like

Everyone wants the order: income protection, trauma, life, TPD, health. For a forty-year-old with a mortgage and kids at school, what goes first?

Reynolds says: "Sorry to say, it's not as simple as that. Every case is subjective, and it really depends on what you are trying to achieve as an individual and what stage you're at."

That's the honest answer, and you'll notice no comparison site gives it, because comparison sites are paid per policy and "it depends on your household" doesn't convert (here's when it is worth seeing an adviser instead).

A single contractor with no dependants and a big mortgage has a different first priority from a couple with three kids and a parent at home. What holds for both is the principle Reynolds keeps returning to: cover has to be sized against the household as it is, which means knowing what the household costs to run.

It also cuts both ways. If you have no debt, a couple of years of expenses in the bank and no one depending on your salary, you may need very little of this cover. Most people reading this are not in that position, and the ones who are usually don't know it, which is where Reynolds' $1,200-a-month couple comes back into our story.

For everyone else, the mortgage was never optional and the income paying it is the thing at risk, usually because the bank's letter about protecting it arrived in the same envelope as fourteen pages of terms and went straight in the drawer. So if you have a policy, how do you know it's still the right one?

How to tell if your income protection is the wrong size

Reynolds runs the same exercise with every client whose cover is more than a few years old.

Reynolds says: "Life changes at an extraordinary rate, and I encourage people to look back at the last five years and think about what has materially changed in their life. For me, for example, in the last five years I've had a divorce, got engaged, bought a house and had a child. Needless to say, my insurance needs have changed."

Run it on your own house and the list fills quickly.

A new job on a higher salary means the income you're protecting is now bigger than the sum insured. A second child means the household needs carrying for longer. A move from renting to a mortgage means the fixed monthly cost has jumped. A partner going self-employed means there is no employer sick leave behind one of the two incomes any more.

Any one of those makes a five-year-old policy the wrong size, and most households have had two or three of them.

The exercise only works if the numbers you bring to it are real. We asked Reynolds what changes when a client walks in already knowing their monthly cashflow and after-tax income, rather than a guess.

Reynolds says: "We can then look at what realistically works for them and right-size the equation, because otherwise it is a best-guess scenario."

An adviser can only size cover against the household in front of them. If the household's own numbers are "about six grand a month, I think", the cover gets sized against a guess, and a guess like that can be out by a thousand dollars a month in either direction.

Get the number right and the premium conversation gets easier too, because you can both see what the house can carry.

This is the part SortMe is built for. Once your accounts are connected, SortMe shows your real after-tax income and what the household spends each month, which is the number Reynolds needs on day one.

The Protection area then holds every policy you already have (life, income protection, trauma, health, house, contents) in one register with the documents attached, shows what leaves your bank for insurance each month, and warns you before a policy renews or the card it's paid from expires.

It also flags the situations Reynolds describes, in plain language: a mortgage on the books with no life cover recorded, income doing the heavy lifting with no income protection listed, or cover that hasn't been reviewed since before the kids or the house.

SortMe doesn't sell insurance or tell you how much you need. It shows you the picture and, if you want, introduces you to a licensed adviser who can.

What to do this week, and what happened to the $1,200 couple

Reynolds' closing point is about how cover fits with everything else, and it's the point the comparison sites skip because they sell one product at a time.

Reynolds says: "Not to cast shade on any provider, but it is important to remember that not all policies are equal, and they fit different people for different purposes. Also, you cannot look at insurances in isolation. It must be viewed as part of a bigger financial conversation, to make sure that all of your products are pulling in the same direction. Otherwise there can be huge inefficiencies that end up costing you a lot."

That is what happened to the couple from the opening. They had been paying $1,200 a month for life cover for years, and nobody had ever put the policy next to the rest of their position.

Reynolds says: "I sat down with a couple who were spending $1,200 a month on life cover, but when we looked at it, I put to them that I believed they were self-insured and had no need for insurance. At which point we were then able to redirect the funds to be saved for the future."

Their savings and lack of debt meant that if one of them died, the other could carry the household without a payout. Fourteen thousand four hundred dollars a year, every year, which is a term of school fees or a very good family holiday, had been going to an insurer for cover they didn't need, because the policy was set up in one decade and never read in the next.

The same review that found too much coverage in their household finds far too little in the house with the toddler, and it takes the same twenty minutes.

This week give this a go: pull up your after-tax income and your monthly spend in SortMe, add the policies you already hold to the Protection register, and write down what has changed in your household in the last five years. Take those three things to an adviser.

You'll come out either properly covered, carrying too much like Reynolds' couple, or knowing exactly where ACC would leave you and what it costs to cover the gap. All three beat finding out the hard way, and the hard way tends to arrive with no warning at all.

As a SortMe user you can ask us to introduce you to a licensed adviser, and the introduction is free. Contact us for more.

Jamie Reynolds is a financial adviser at Naked Finance, Hobsonville, Auckland. Naked Finance is a SortMe partner. Nothing in this article is personalised financial advice; talk to a licensed adviser about your own situation.

Sources

1. Financial Services Council, Financial Resilience Index 2026, as reported by the NZ Herald, July 2026 — nzherald.co.nz
2. ACC, Weekly compensation (up to 80% of income; eligibility usually from day 8) — acc.co.nz
3. ACC, Injuries we don't cover (illness, ageing-related conditions, gradual-process injuries), last published 13 August 2025 — acc.co.nz
4. Insurance Business NZ, "ACC's long-term claims pool drops into negative territory", 1 July 2026, citing ACC's 2025 Annual Report and Turnaround Plan papers — insurancebusinessmag.com