ACC vs Income Protection Insurance
Our definitive guide outlines what ACC covers (and what it doesn't), and the benefits and costs of Income Protection Insurance to help you make an informed choice about protecting your family.
Updated 3 April 2024
Summary
To help explain what you need to know and make your decision-making better informed, our guide covers:
Summary
- ACC is a government-funded benefit that pays for treatment and compensates you for financial loss if you're injured and can't work and/or need medical care.
- ACC has many purposes, but it is primarily designed to fund their treatment and recovery while paying a salary benefit for time off work for anyone injured.
- ACC pays up to 80% of your salary (up to a limit of $2,066.58 per week) while you're off work. If an injury causes your death, ACC will pay a benefit to your family (dependant, spouse and funeral payments are outlined here)
- ACC is paid for by every employee and small business owner via a levy on pre-tax income. You can estimate your annual ACC levy using our PAYE calculator.
- Income Protection Insurance is optional coverage that will pay up to 75% of your salary for two years, five years, or up until 65 or 70.
- Income Protection Insurance offers what its name suggests - it replaces your income so you can keep up with mortgages, living and lifestyle costs. Policies don't pay medical bills or the costs of medicines.
- Income Protection Insurance is sold by insurers and brokers, with costs ranging from around $500 to $1,000 a year to a lot more (depending on the amount insured for and how long you'll be paid while you're unable to work).
To help explain what you need to know and make your decision-making better informed, our guide covers:
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Your guide to income protection insurance vs ACC is published thanks to Life Direct
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Know This First: Does ACC mean there's no need for Income Protection Insurance?
Many New Zealanders are confused by what ACC covers and whether income protection insurance overlaps. Each provide very different benefits even if they look similar. Firstly, ACC only covers injuries; it doesn't cover illnesses. The majority of people absent from work long-term are suffering from an illness, not injuries. ACC's list of covered injuries is published here.
Know This: In such situations, unless an employer provides a generous long-term sickness benefit to its employees, few people can afford to be off work for more than 2-4 weeks without pay. According to a survey for the Financial Services Council NZ, 1 in 7 households in New Zealand have experienced a serious illness event over the past five years, resulting in an inability to work for three months or more and consequent loss of income.
If a serious illness event that resulted in the primary income earner being unable to work occurred, there is a significant effect on households' ability to continue to pay their household expenses and maintain their lifestyle, once sick leave and annual leave ran out:
Know This: In such situations, unless an employer provides a generous long-term sickness benefit to its employees, few people can afford to be off work for more than 2-4 weeks without pay. According to a survey for the Financial Services Council NZ, 1 in 7 households in New Zealand have experienced a serious illness event over the past five years, resulting in an inability to work for three months or more and consequent loss of income.
If a serious illness event that resulted in the primary income earner being unable to work occurred, there is a significant effect on households' ability to continue to pay their household expenses and maintain their lifestyle, once sick leave and annual leave ran out:
- 20% of households would only be able to continue to meet their expenses for one week.
- Another 14% would be able to continue for two weeks.
- By four weeks after sick leave and annual leave ran out, an overall 55% of households would be unable to pay all their expenses and maintain their lifestyle.
ACC Cover and Limits
ACC is not a state-run income protection insurance scheme - instead, it's very restrictive, and many people are denied claims every year (fairly or unfairly). Firstly, the claim must relate 100% to an injury. If a pre-existing condition has led to the injury, the claim can be denied outright. There are regular complaints and appeals, as outlined in this Stuff.co.nz article which highlights the cover limitations.
If your ACC claim is approved, medical bills are paid for, and you can access recovery services such as physios and medicines. You'll also receive 80% of your pre-disability salary (up to $2,066.58) until you're able to return to work.
ACC is strict in ensuring people are frequently assessed as to when they can return to "work". This means any work, not the job you had when you had the injury. If you were earning $100,000 as an IT programmer and an injury prevented you from long computer time, ACC would expect you to find a job that you could do even if it paid less. ACC, like Jobseeker Support, is an emergency benefit not a lifestyle entitlement.
If your ACC claim is approved, medical bills are paid for, and you can access recovery services such as physios and medicines. You'll also receive 80% of your pre-disability salary (up to $2,066.58) until you're able to return to work.
ACC is strict in ensuring people are frequently assessed as to when they can return to "work". This means any work, not the job you had when you had the injury. If you were earning $100,000 as an IT programmer and an injury prevented you from long computer time, ACC would expect you to find a job that you could do even if it paid less. ACC, like Jobseeker Support, is an emergency benefit not a lifestyle entitlement.
If I'm injured, how long can I receive ACC salary payments?
ACC does not endlessly pay out 80% of your salary. If your injury is permanent, ACC will assess you for support - you can read about their process here. You may be paid out a lump sum, for example, if you have a brain injury or an amputation.
Why do New Zealanders buy Income Protection Insurance?
As outlined in the government report above, 80% of long-term workplace absences are due to illnesses, not injuries. Common illnesses include cancer, significant surgeries, heart issues and depression. An insurance policy offers to pay up to 75% of your salary for as long as you initially agreed.
With ACC unable to cover illnesses, the threat of being made to return to any job when suitable recovered and the absence of generous long-term injury benefits, taking out private insurance has some merits.
Additionally, all ACC applicants need to prove their income. If you're self-employed, this can be difficult given the variance of payments, especially in post-COVID-19 New Zealand. ACC offers CoverPlus Extra (CPX) to give you flexibility:
With ACC unable to cover illnesses, the threat of being made to return to any job when suitable recovered and the absence of generous long-term injury benefits, taking out private insurance has some merits.
Additionally, all ACC applicants need to prove their income. If you're self-employed, this can be difficult given the variance of payments, especially in post-COVID-19 New Zealand. ACC offers CoverPlus Extra (CPX) to give you flexibility:
Self-Employed or a Contractor? ACC offers CoverPlus Extra (CPX) and its worth considering
ACC offers an optional add-on to its standard cover for self-employed and contractors. It allows you to decide how much of your income you want to be covered and how much will be paid out if you have an injury and can't work. It works like an insurance policy (albeit specific to covered injuries) and is designed to appeal to anyone who:
Remember, CPX only applies to covered injuries, and you'll need to pay a higher (or lower) ACC levy to receive the benefits if and when you make a claim.
- Has a fluctuating income as CPX pays a pre-agreed amount
- Wants to apply for more (or less) cover than their actual income
- Are newly self-employed with no earnings history and want assurances around how much cover will be paid out.
Remember, CPX only applies to covered injuries, and you'll need to pay a higher (or lower) ACC levy to receive the benefits if and when you make a claim.
ACC vs Income Protection Insurance - Our Conclusion
- ACC is a fantastic scheme, and New Zealand is one of the few countries in the world to operate such benefits. However, it's not without its limits and isn't in any way a catch-all should you fall ill. When most people are off work long-term, it's due to an illness, not an ACC-covered injury.
- That being said, Income Protection Insurance isn't always affordable, and while it can be generous, there are some significant ongoing policy costs involved. Our comparison and review outlines sample quotes and must-know tips about buying a policy.
- If you have Income Protection Insurance and suffer an injury that ACC covers, your compensation will be paid out by ACC first. Your insurer will top up any difference in what ACC pays and your policy benefit. For example, if you earn $100,000 a year, ACC will pay 80% (around $1,500 a week). If your insurance cover were for $2,000, the insurer would pay $500. An insurer won't pay your full benefit alongside ACC's compensation as doing so would inflate your income, not protect it. If you insured for $1,000 a week and ACC pays $1,500, your insurer won't pay anything.
- Furthermore, if ACC decides you're fit to work in any job, an Income Protection Insurance policy will step in and pay you until you're capable of returning to your job.
- For these reasons, we see the merit in Income Protection Insurance for protecting your finances should you fall ill and need significant time off work. However, the costs can be prohibitive. Our guides below outline how to save money when looking for a policy.