Search

Income Protection Insurance Claims Statistics: Insightful Data on Who Claims and Why

We publish real claims data and outline how 32% of income protection payouts are now mental health, declines happen when you don't disclose, and the wrong policy could cost you more in the long-term.
Updated 11 February 2026

​Summary
  • Income protection insurance replaces your income if you cannot work due to illness or injury. But how often do people actually claim? What conditions trigger claims? And what happens when you need to make one?
  • To help understand more, we obtained claims data from LifeDirect, one of New Zealand's largest independent insurance advisers, covering their income protection portfolio over the last 12 months (1 January to 31 December 2025).
  • Combined with industry-wide statistics, this guide reveals what really happens when New Zealanders need to claim on their income protection policies.
 
To help you understand income protection insurance claims, conditions, coverage and payouts, our guide covers:
Read this First: Our View of Income Protection Insurance
  • Income protection is arguably one of the most underrated insurance products in New Zealand. While life insurance gets most of the attention when it comes to getting life-related insurance, the reality is you are far more likely to be temporarily unable to work than you are to die during your working years.
  • A back injury, a mental health crisis, or a cancer diagnosis can leave you without income for months - and that is exactly when the bills keep coming.
  • The data tells an important story. Mental health claims now represent 32% of all income protection claims through LifeDirect - significantly higher than the 20% industry average confirmed by LifeDirect.
  • This likely reflects increasing awareness and willingness to claim for mental health conditions, but it also shows that stress, burnout, anxiety, and depression are genuine risks to your earning capacity.
  • For self-employed New Zealanders - who make up 60% of income protection policyholders managed by LifeDirect - such coverage is increasingly important. There is no employer sick leave to fall back on, ACC is limited to accidents and won’t cover illnesses, and, for most self-employed people, no government safety net comes close to replacing your actual income.
  • We believe that income protection insurance is the only thing standing between you and financial disaster if you cannot work.
  • The average premium of $115 per month buys you $5,400 per month in benefits if you need to claim. That is a 47:1 ratio of potential benefit to cost. Few other insurance products offer that kind of leverage.

Recent claims:
  • Income protection insurance paid out approximately $1.6 million to LifeDirect clients alone in the past year. The average claim lasts 4-6 months, and the most common reasons for claiming are musculoskeletal injuries (38%) and mental health conditions (32%). We outline what these commonly are below.
  • If you are self-employed or work in a physically demanding job, these statistics are particularly relevant to your situation.
​This guide presents claims and policy data from two sources:
  1. LifeDirect data: Claims and policy information from LifeDirect, one of New Zealand's largest independent insurance advisers. LifeDirect manages approximately 5,400 active policies representing $2.4 million in annual premiums. Life insurance represents 31% of their product mix. Total life and terminal illness claims paid over the past 12 months reached $32.1 million.
  2. Industry statistics: Aggregated data from across the New Zealand insurance industry, sourced from industry bodies and insurer publications.

Important: About 75% of LifeDirect's clients received advice through their adviser network, with 25% purchasing directly. This may influence some statistics compared to the broader market.

Disclaimer: This guide is for informational purposes only and does not constitute financial advice. Your individual circumstances will determine appropriate cover levels. We suggest getting an online quote and talking to an adviser before making any decision.

Key Income Protection Insurance Claims Statistics

The following statistics are drawn from LifeDirect's claims data over the past 12 months, combined with broader industry figures:
Statistic LifeDirect Industry Average
Total Claims Paid (Last 12 Months) 26 claims ~1,200 claims
Total Payout Amount ~$1.6 million $60–90 million
Average Claim Duration 4–6 months 6–12 months
Average Monthly Benefit $5,400/month $4,000–$6,000/month
Income Replacement Level 75% 75%
Average Premium $115/month $100–$200/month
Declined Claims Minimal 5–8%
Self-Employed Policyholders 60% 60%
Average Age at Purchase 41 years 35–45 years
Important: LifeDirect reports minimal declined claims, mainly for non-disclosure or pre-existing conditions. The industry average is 5-8% declined. This reinforces the importance of full disclosure when applying - claims get declined when people have not been honest about their health history.
Find out what income protection costs for your job and salary

What Conditions Trigger Income Protection Claims?

Understanding what actually causes people to claim helps you assess your own risk and whether income protection makes sense for your situation. The table below shows the latest claims data:
Claim Cause LifeDirect Claims Industry Average Common Examples
Musculoskeletal and Injuries 38% 42% Back injuries, broken bones, joint problems, RSI, workplace accidents
Mental Health 32% 20% Depression, anxiety, burnout, stress-related conditions, PTSD
Illness-Related 18% 15% Heart conditions, respiratory illness, chronic fatigue, autoimmune conditions
Cancer and Serious Medical Events 12% 15% Cancer diagnosis, major surgery, organ-related conditions

1. Musculoskeletal and Injuries (38% of claims)

The claims data we reviewed highlighted several important trends:
  • The largest category of claims comes from injuries and musculoskeletal conditions - back injuries, broken bones, joint problems, repetitive strain injuries, and workplace accidents.
  • This is particularly relevant if you work in trades, construction, healthcare, or any physically demanding occupation.
  • These claims often arise from everyday activities, not just dramatic accidents – a builder who herniates a disc lifting materials, a nurse who develops chronic back pain from patient handling, an office worker who develops severe RSI.
  • These conditions can take months to resolve and may require surgery, rehabilitation, and gradual return to work.
 
Important: ACC covers work-related injuries, but income protection covers everything ACC does not - injuries at home, sports injuries on weekends, conditions that develop gradually, and the gap between ACC's 80% payment and your actual income. Our guide to Income Protection Insurance vs ACC explains more.

2. Mental Health (32% of claims)

The claims data we reviewed highlighted several important trends:
  • Mental health conditions represent the second largest category and are growing - LifeDirect's 32% is notably higher than the 20% industry average, suggesting either better awareness among their clients or a client base with higher-stress occupations.
  • Depression, anxiety, burnout, stress-related conditions, and PTSD are all legitimate reasons for income protection claims. These conditions can be just as debilitating as physical injuries - someone experiencing severe depression may be completely unable to function at work, even if they look physically healthy.
 
Know This: Mental health is one of the most common reasons for policy loadings or exclusions during underwriting. If you have a history of mental health treatment, you may face higher premiums or specific exclusions. However, this makes getting cover while you are healthy even more important - once you have a claim history, getting new cover becomes much harder.

3. Illness-Related (18% of claims)

General illness accounts for 18% of claims - heart conditions, respiratory illness, chronic fatigue, autoimmune conditions, and other medical issues that prevent work. These often involve longer recovery periods and may require ongoing treatment while you gradually return to work.

4. Cancer and Serious Medical Events (12% of claims)

Cancer and other serious medical events represent 12% of income protection claims. While less common than injuries or mental health, these claims often involve the longest durations - chemotherapy, surgery, and recovery can keep someone off work for 12 months or more.
 
For cancer claims, income protection works alongside trauma insurance. Trauma pays a lump sum on diagnosis; income protection replaces your ongoing income during treatment and recovery. Having both provides comprehensive protection, although it can be an expensive ongoing cost for many people.
Find out what income protection costs for your job and salary

How Income Protection Policies Are Structured

Understanding the typical policy structure helps you make informed choices when buying cover. Our table below outlines what's on offer, and why it matters.
Policy Feature Most Common Choice Options Available Key Consideration
Income Replacement Level 75% of gross income 55%–75% of gross income 75% is standard; insurers cap at this level to maintain return-to-work incentive
Wait Period 4 weeks 1 week, 2 weeks, 4 weeks, 8 weeks, 13 weeks Longer wait periods reduce premiums; a 13-week wait suits those with a solid emergency fund
Benefit Period 2 years (self-employed)
To age 65 (employees)		 2 years, 5 years, to age 65 ~60% of LifeDirect clients choose 2 years; to age 65 covers permanent disability
Most Popular Insurer AIA AIA, Fidelity Life, Partners Life, Chubb Life AIA holds 44% of LifeDirect's income protection policies
Underwriting Outcome Standard approval (70–75%) Standard, loaded (20–50% extra), excluded, declined Common loadings for BMI, back issues, and mental health history
There are three key features of a policy:

1. Income Replacement Level: Usually 75%

Most policies replace up to 75% of your gross income. This is not 100% for a reason - insurers want you to have some financial incentive to return to work. The 75% figure typically allows you to maintain your lifestyle without the work-related expenses (commuting, work clothes, etc.) while recovering.
 
For self-employed people, calculating income can be more complex. Insurers typically look at your last 2-3 years of tax returns to establish your average income. If your income varies significantly year to year, talk to your adviser about how your benefit would be calculated.

2. Wait Period: Usually 4+ Weeks

The wait period is the time between becoming unable to work and when your benefits start. Four weeks is the most common choice, representing a balance between premium cost and practical coverage.
 
Shorter wait periods (2 weeks, 1 week) mean higher premiums but faster payouts. Longer wait periods (8 weeks, 13 weeks) reduce premiums significantly but require you to self-fund for longer, meaning you’ll need an emergency fund.
 
Tip: If you have 3-6 months of expenses in savings in an emergency fund, a longer wait period can substantially reduce your premiums while still protecting you against extended inability to work.

3. Benefit Period: Ranges from Up to 2 Years vs Up to Age 65

The benefit period determines how long the policy will pay for a single claim. The most common choices are:
  • 2-year benefit period: Popular with trades and self-employed clients because it keeps premiums affordable. Covers you through most injuries and illnesses but would not cover permanent disability. For reference, about 60% of LifeDirect's income protection clients choose this option.
  • To age 65: Provides coverage until retirement age, protecting against conditions that permanently prevent work. More expensive but provides complete protection. Such a term is more common among employees who want comprehensive cover.
 
Know This: The average claim duration of 4-6 months means most claims would be fully covered even by a 2-year policy. However, if you developed a permanent condition, the 2-year policy would stop paying while you still could not work.

Who Buys Income Protection Insurance?

The profile of income protection policyholders reveals who values this cover most:
  • Self-employed: 60% - The majority of policyholders are self-employed, including tradies, consultants, contractors, and small business owners. This makes sense - they have the most to lose if they cannot work and no employer safety net.
  • PAYE employees: 40% - Employees with mortgages, families, and financial commitments who cannot afford to rely on statutory sick leave alone.  
  • Common occupations: Trades (builders, electricians, plumbers), healthcare workers, teachers and education professionals, and small business owners dominate the policyholder base.
  • Average age at purchase: 41 years - Most people buy income protection in their late 30s to early 40s, when they have mortgages, families, and peak earning years ahead. Buying earlier locks in lower premiums and ensures you get cover before health issues develop.
  • Average premium: $115 per month - This buys an average benefit of $5,400 per month. Premiums vary significantly based on age, occupation, health, and policy structure.

What Happens During Underwriting?

When you apply for income protection, the insurer assesses your risk. Here is what to expect:
  • Standard approval (70-75%): About three-quarters of applicants are approved at standard rates without any loadings or exclusions. If you are in good health with no significant medical history, you will likely fall into this category.
  • Loaded or excluded (20-25%): About one in four applicants receive offers with either higher premiums (loadings of 20-50% extra) or specific exclusions. Common reasons include BMI outside normal range, history of back problems, and mental health history.
  • Declined (rare): A small number of applicants are declined, usually for recent serious health issues or high-risk occupations. Even if declined by one insurer, others may offer cover - this is where working with a broker who can approach multiple insurers becomes valuable.
  • Critical point: Full disclosure is essential. The most common reason for declined claims is non-disclosure - failing to tell the insurer about health issues when you applied. Even if you think something is minor or was a long time ago, disclose it. Insurers check medical records when you claim.

How Claims Are Paid

Understanding the claims process helps you know what to expect if you need to claim:
  • Step 1 - Notify your insurer or adviser: Contact them as soon as you know you will be off work for an extended period. Do not wait until after your wait period ends.
  • Step 2 - Provide medical evidence: Your doctor will need to complete claim forms confirming your condition and inability to work. The insurer may request additional medical reports.
  • Step 3 - Wait period passes: No benefits are paid during the wait period (typically 4 weeks). Keep documentation of your inability to work during this time.
  • Step 4 - Monthly payments begin: Once approved, you receive monthly payments (typically 75% of your insured income) for as long as you remain unable to work, up to your benefit period limit.
  • Step 5 - Ongoing assessment: For longer claims, the insurer will periodically review your condition and may require updated medical reports. They may also support rehabilitation efforts to help you return to work.
 
Tip: If you bought through an adviser like LifeDirect, they will help manage the claims process for you. This support can be valuable when you are dealing with illness or injury and do not want to navigate insurer bureaucracy alone.

Frequently Asked Questions

How long does the average income protection claim last?

LifeDirect data shows an average claim duration of 4-6 months, while industry-wide the average is 6-12 months. Most people return to work within a year, but some claims - particularly for cancer or serious mental health conditions - can extend for 2 years or longer. This is why benefit period choice matters.

What percentage of income protection claims are declined?

LifeDirect reports minimal declined claims. Industry-wide, approximately 5-8% of claims are declined. The most common reasons for decline are non-disclosure (failing to tell the insurer about health conditions when applying) and pre-existing conditions that were excluded from your policy. Honest disclosure when you apply is the best way to ensure your claim is paid.

Can I claim for mental health conditions?

Yes - mental health conditions represent 32% of LifeDirect's income protection claims. Depression, anxiety, burnout, and stress-related conditions are legitimate reasons to claim. However, if you have a history of mental health treatment, your policy may have a mental health exclusion or loading. Check your policy wording to understand your coverage.

What is the difference between income protection and ACC?

ACC covers injuries caused by accidents. Income protection covers illness, medical conditions, and injuries that are not covered by ACC (such as gradual onset conditions or injuries outside of work/covered activities). ACC pays 80% of your income; income protection can cover the remaining gap plus provide full coverage for non-ACC conditions. Many people have both.

Should I choose a 2-year or to-age-65 benefit period?

A 2-year benefit period covers most claims (average duration is 4-6 months) at significantly lower premiums. However, it would not cover you if you became permanently unable to work. A to-age-65 policy provides complete protection but costs more. Consider: if you developed a permanent condition at age 45, could you manage financially? If not, the to-age-65 option may be worth the extra premium.

Do I need income protection if I have sick leave?

Statutory sick leave provides only 10 days per year after 6 months of employment. If you are off work for months with a serious condition, sick leave runs out quickly. Even generous employers typically provide only 4-6 weeks of sick leave. Income protection covers the extended periods that employer benefits cannot.

What happens if I can work part-time but not full-time?

Most policies include partial disability benefits. If you can work reduced hours or in a limited capacity, you may receive a partial benefit that makes up the difference between your reduced income and your normal income. This supports gradual return to work rather than requiring you to be completely unable to work.

Why is income protection more expensive than life insurance?

Because claims are much more common. You are far more likely to be temporarily unable to work during your career than you are to die. The insurer expects to pay out more frequently, so premiums reflect this higher claims probability. Think of it as paying for cover you are more likely to actually use.

Can I increase my cover later if my income goes up?

Most policies include an "increasing cover" or "future insurability" option that allows you to increase your benefit as your income grows, without new medical underwriting. There are usually limits on how much and how often you can increase. Check your policy for these options and use them - your cover should grow with your income.

What is the best income protection insurer in New Zealand?

AIA is the most popular insurer, holding 44% of LifeDirect's income protection policies. However, "best" depends on your circumstances - occupation, health, budget, and specific needs. Working with an independent adviser who can compare policies from multiple insurers is the best way to find the right cover for you. Different insurers have different strengths for different situations.

Is income protection tax deductible?

For self-employed people and businesses paying premiums for employees, income protection premiums are generally tax deductible. The trade-off is that benefit payments are taxable income. For personal policies paid from after-tax income, premiums are not deductible but benefits are typically tax-free. Consult your accountant for advice specific to your situation.

What if I change jobs or become self-employed?

Your income protection policy stays with you - it is not tied to your employer. If you change jobs or become self-employed, notify your insurer so they can adjust your cover to reflect your new income and occupation. Some occupation changes may affect your premium (higher-risk occupations cost more) but you will not lose your cover.
Find out what income protection costs for your job and salary
Related guides