ACC vs income protection: what you're actually covered for.

What ACC actually does

The Accident Compensation Corporation runs a no-fault, universal accident insurance scheme funded by levies on employers, employees, motorists and the Government. If you're injured in an accident, ACC covers your treatment costs, and if the injury stops you working, ACC pays you weekly compensation at 80% of your pre-injury earnings, indefinitely, for as long as the injury continues to prevent work.

'Accident' is defined narrowly in NZ law. It means a specific external event causing a specific injury. A car crash, a fall off a ladder, a sports injury, a slip on a wet floor. ACC pays for those. The Corporation publishes the full statutory framework (ACC NZ).

What ACC does not do

This is the part of the conversation that surprises households the most.

• Illness: if you're diagnosed with cancer, ACC does not pay you weekly compensation. ACC covers treatment costs for accidents only; illness goes through the public health system or your private health insurance.
• Heart attack, stroke, chronic illness: not ACC. These are illnesses, not accidents.
• Mental health absences: generally not ACC, unless the mental health condition is the direct consequence of a covered accident (and even then, the bar for cover is high).
• Back pain, repetitive strain, gradual-onset musculoskeletal conditions: ACC has specific rules around 'gradual process' injuries that exclude most of these from cover.
• Pregnancy-related absence: not ACC.
• Surgery for a non-accident condition: not ACC.

The Statistics NZ Household Labour Force Survey consistently shows that illness, mental health and chronic conditions are far more common causes of extended work absence than accidents. ACC, statistically, covers only a minority of long-term work-stopping events.

What income protection insurance does

Income protection insurance is a private policy that pays you a percentage of your pre-disability income (typically 75%) if you become medically unable to work, for a defined period. Most policies pay until age 65 if the condition is permanent; some pay for a shorter benefit period (2 or 5 years).

The policy covers both injury and illness, so it duplicates ACC partially (with offset clauses that prevent double payment) and covers the large illness gap that ACC doesn't touch.

Key policy parameters:

• Benefit: typically 75% of pre-disability income, paid monthly.
• Wait period: the period after disability begins before payments start. Common options are 4, 8, 13 weeks, or longer. Longer wait = cheaper premium.
• Benefit period: how long payments continue. Options are 2-year, 5-year, or to-age-65. To-age-65 is most expensive and most useful for permanent conditions.
• Definition of disability: own-occupation (you can't do your specific job), any-occupation (you can't do any job), or income-based (your income has dropped by a defined percentage).

The own-occupation question

This is the single most important policy term. Own-occupation cover pays if you can't do your specific occupation. Any-occupation cover only pays if you can't do any reasonable occupation, including one you've never done before. The bar for an any-occupation claim is much higher.

A surgeon who develops a tremor and can't operate is permanently disabled under an own-occupation definition (they cannot do their specific job). Under an any-occupation definition, the surgeon might be expected to retrain into a non-surgical medical role, which would mean the policy doesn't pay.

For most professional and skilled occupations, the own-occupation definition is worth the premium difference.

What it costs

Indicative only; pricing depends on age, occupation, smoker status, gender, benefit level, wait period and benefit period.

• 35-year-old non-smoking office worker, $90,000 income, 75% benefit, 8-week wait, to-age-65 own-occupation: roughly $80 to $150 per month.
• 45-year-old non-smoking tradesperson, same parameters: roughly $200 to $400 per month (higher occupational risk).
• 50-year-old smoker, professional, same parameters: $350 to $600 per month.

The Financial Markets Authority and the major insurers publish indicative figures (FMA insurance information). The numbers shift with each year of age, so the right time to take cover is usually earlier rather than later.

How it interacts with ACC

If you have both ACC and income protection, and an accident triggers both, most policies have an 'ACC offset' clause that reduces the income protection payment by the amount ACC is paying. The combined payment is structured so you receive no more than 80-85% of your pre-disability income, which is the regulator's view of preventing over-insurance and the moral hazard that comes with it.

For illness claims (where ACC is not paying), the full income protection benefit applies without offset.

Who needs income protection most

1. Sole earners. If your income is the only one in the household, the consequences of losing it are largest.
2. Self-employed people. No sick leave, no employer-paid extended absence cover. The first six weeks of inability to work has no fallback besides personal savings.
3. Tradespeople. Higher injury rates, and the work depends on physical capability that can be permanently impaired by even moderate illness.
4. People with mortgages. Mortgage payments don't pause if you can't work. Income protection covers the mortgage and other essentials.

Who needs it least

1. Retirees and near-retirees. Income is replaced by NZ Super and KiwiSaver. The work-income loss isn't the risk.
2. Households with significant liquid assets. A 5-year buffer of expenses in liquid assets self-insures against most short-term and medium-term work disruption.
3. Dual-earner households with one stable partner income that covers all fixed costs. The 'second income' is genuinely optional; insuring it is debatable.

What we do for clients on this

The conversation maps three things: income mix (how dependent is the household on one source?), liquid buffer (how long could you go without work-income?), and existing cover (group life, employer income protection, ACC, private policies). The recommendation falls out of those three. About half our clients end up with some income protection; the other half don't need it because their buffer is large enough or their income mix already smooths the risk.