It depends on your personal financial situation. If you developed back problems or an illness like cancer and couldn't work, would you be able to cover your everyday bills and expenses? ACC does not cover lost income due to illness, and four out five long term absences from work are due to illness and not injury.

Cancer, heart attacks, strokes and ongoing back pain are all common issues which often result in long periods off work for recovery. Income Protection Insurance steps in to provide a regular amount of money until you are well enough to return to work. 

​It doesn’t matter whether or not you have children or other dependents – if a period of time off work means you couldn’t pay a mortgage and other bills, income protection insurance is well worth considering. If you have an employer, it's important to check your current sick leave benefits. If the limit is two weeks per year, then there is little safety net should you require more time off work. New Zealanders who are self-employed who don't have sick leave to fall back on are most at risk of being financially worse off should time off work be needed.

You might not need income protection insurance if:

1. You could get by on your sick pay; some companies offer full pay at up to 12 months for illnesses, which could cover your immediate weekly costs. 
2. You have sufficient savings to support yourself for at least 12 months
3. You are near to retiring and can rely on KiwiSaver and government superannuation entitlements
4. Your partner or family would support you financially while you treat your illness​

The cost of a policy depends on your age, health, and the benefits of the policy. Generally, the more comprehensive the policy, the higher the cost. 
 
The exact cost of a policy is influenced by:

• Your age
• Your job and annual income
• Your current health, weight and family medical history
• Smoker or non-smoker, or have previously smoked
• The percentage of your income you’d like to cover
• The waiting period before the policy starts to make payments
• The range of illnesses and injuries covered
• The payment period you choose - i.e. two years, five years or up to 70 years of age.  ​

Quite simply, no. If your claim is successful, you will receive a lump sum or regular payment from your insurer. The money is yours to do what you want with it. Most common uses include: 

• Paying bills - mortgage, credit cards, electricity and car expenses add up and are far more noticeable if you don't have an income
• Recovery treatments or rehabilitation – you may want to undertake additional or alternative treatments not covered by either your health insurance or the public health system.
• Childcare and home help
• Repaying debt

The answer is 'it depends', and every policyholder is unique. New Zealand's tax laws make it a little complicated. In the interests of trying to provide some guidance on the tax position of income protection insurance, we have outlined below our current understanding of the tax position. MoneyHub cannot and does not guarantee the correctness of this understanding, nor take any responsibility for any tax outcomes that may arise from any differences between our
understanding as detailed below and the view of the Inland Revenue Department. In such matters, we always suggest individuals seek independent tax advice.

We understand, subject to the above disclaimer, that:

1. If the income protection policy is for an Income Cover Agreed Value, for example, a policy pays a fixed sum of $2,500 per week if you're diagnosed with cancer (with the diagnosis being the trigger of the policy benefit, not the inability to work and loss of income), then this will be paid without being subject to tax. Generally, premiums payable for this Income Cover Agreed Value benefit are not tax-deductible and therefore claims proceeds received are not taxable as income. 
2. If you make a tax deduction on a policy, we understand that any benefits paid during a claim become tax assessable. For example, it's very normal for self-employed policyholders to deduct the insurance expense against their taxable income, therefore making any claim payments automatically subject to tax.