This is Bob's core product-knowledge layer for income protection (IP) in New Zealand, plus brief foundations on the adjacent personal-risk covers an adviser sits alongside it. Each section is a self-contained, plain-language explanation written in our own words from public consumer-education and industry material; it is the "explain simply" layer Bob uses to describe cover and to structure an IP application. Anything that shapes a recommendation is marked drives: advice and stays draft until adviser and legal sign-off; figures we could not verify against a public source are flagged [VERIFY].
What income protection insurance is and who it's for
Income protection insurance replaces part of your income, usually as a regular monthly payment, when you cannot work because of illness or injury. It exists because most households depend on an income to cover the mortgage or rent, food, power, and everyday costs, and that income is one of the largest financial assets a working person has. If a long illness or a serious injury stops you earning, income protection keeps money coming in while you recover, rather than forcing you to run down savings, sell assets, or fall behind on commitments.
It is most relevant to people who earn an income they and their household rely on, and who would struggle if that income stopped for months or longer. The self-employed, contractors, and sole earners often feel the gap most sharply, because they usually have no employer sick-leave buffer and (for illness) no ACC support. The product pays for the inability to earn, not for the medical event itself, which is what separates it from lump-sum covers like trauma or life insurance. Because income protection directly shapes how much income is at risk and how it should be replaced, working through it is central to an IP intake.
Source: Sorted, Retirement Commission (https://sorted.org.nz/guides/protecting-wealth/insurance-types/) · retrieved 2026-06-18 · rights: own-summary · drives: advice · status: draft
Income protection vs mortgage repayment cover vs ACC (the NZ gap)
These three sit close together in New Zealand but do different jobs, and the differences matter when structuring cover. Income protection replaces a portion of your overall income (commonly paid monthly) when illness or injury stops you working, so it can fund the mortgage, rent, food, power, and the rest of life. Mortgage repayment cover is narrower: it is designed to cover your mortgage (or sometimes rent) payments specifically if you can't work, so the benefit is sized to the loan repayment rather than to your wider income and living costs. A household with a mortgage but also other commitments will usually find mortgage cover alone leaves a gap.
The New Zealand-specific piece is ACC (the Accident Compensation Corporation). ACC is a no-fault scheme that covers injury, not illness. For a covered injury that stops you working, ACC can pay weekly compensation of up to 80% of your pre-injury earnings (above a stand-down period, and subject to a maximum weekly limit). The critical gap is that most long-term time off work is caused by illness (for example cancer, mental-health conditions, chronic disease), and ACC does not pay for illness at all. Income protection is the cover that fills that illness gap, and it can also top up the difference for injury where ACC's 80% and its limits leave a shortfall. Because ACC already covers injury, the interaction between ACC and an IP policy (see offsets) is a core part of getting the structure right for a New Zealand client.
Source: Sorted, Retirement Commission (https://sorted.org.nz/guides/protecting-wealth/insurance-types/); ACC weekly compensation (https://www.acc.co.nz/im-injured/financial-support/weekly-compensation/); MoneyHub (https://www.moneyhub.co.nz/acc-vs-income-protection-insurance.html) · retrieved 2026-06-18 · rights: own-summary · drives: advice · status: draft
Agreed value vs indemnity value (and loss of earnings)
Income protection policies differ in how the benefit is worked out, and this is one of the most consequential choices. Under indemnity value, the benefit is based on your income at the time you claim, so the insurer checks your actual earnings (often a recent average) when you go off work and pays a percentage of that. The risk is that if your income dropped before you claimed (a quiet patch in business, reduced hours, a career break), the benefit you receive can be lower than you expected, even though you paid premiums. Agreed value worked the other way: the insurable income was assessed and effectively locked in when the policy started, so at claim time you proved you held the policy rather than re-proving your current income, giving more certainty (this historically suited the self-employed with variable income). A loss-of-earnings approach is a variant that ties the benefit to the actual drop in earnings caused by the disability, paying the difference rather than a flat percentage.
The trade-off is certainty versus cost and current relevance: agreed value gave certainty but tended to cost more and could pay out more than the person was currently earning. The important market context is that most new New Zealand income protection is now written on an indemnity (or loss-of-earnings) basis and several insurers have withdrawn agreed value, so for a new application it may not be available. Note there was no NZ regulatory ban (some insurers still offer agreed value); the hard cessation was in Australia, where APRA required insurers to stop writing agreed-value cover from 31 March 2020 (see au/regulatory-products.md). Where a client holds an older agreed-value policy, that existing certainty can be valuable to preserve. Because this choice changes both what gets paid and what evidence is needed at claim, it is squarely advice.
Source: MoneyHub (https://www.moneyhub.co.nz/income-protection-insurance.html) · retrieved 2026-06-18 · rights: own-summary · drives: advice · status: draft
Wait period (stand-down period)
The wait period (also called the stand-down or waiting period) is the length of time you must be unable to work before the policy starts paying. Common options are around 4, 8, 13, and 26 weeks. During this period you receive nothing from the policy, so you are relying on sick leave, savings, ACC (for injury), or other support to bridge the gap. The wait period you choose should line up with how long the household could realistically self-fund before the benefit kicks in.
The wait period trades off directly against premium: a shorter wait period (for example 4 weeks) means the insurer expects to start paying sooner and on more claims, so the premium is higher; a longer wait period (for example 13 or 26 weeks) means you carry more of the early risk yourself, so the premium is lower. A practical way to structure it is to match the wait period to available savings and sick leave, then use the longest wait period the household can comfortably absorb to keep the premium efficient. Because this choice changes both cost and the cash-flow gap a client must self-fund, it is part of the advice.
Source: MoneyHub (https://www.moneyhub.co.nz/income-protection-insurance.html); Sorted, Retirement Commission (https://sorted.org.nz/guides/protecting-wealth/insurance-types/) · retrieved 2026-06-18 · rights: own-summary · drives: advice · status: draft
Benefit period
The benefit period is the maximum length of time the policy will keep paying the monthly benefit for a single claim, once the wait period has passed and you remain unable to work. Common options are a fixed term such as 2 years or 5 years, or a longer to age 65 (sometimes another set retirement age). A 2-year benefit period covers shorter disabilities and runs out if you are still unable to work after two years; a to-age-65 benefit period keeps paying through a long-term or permanent inability to work, right up to the chosen age.
The benefit period is the main lever for how much real protection the policy gives against a serious, long-lasting condition, and it trades off against premium: a longer benefit period (to age 65) costs more than a short one (2 years) because the insurer may have to pay for many more years. The judgement is about which risk worries the household most: a 2-year period is cheaper and handles common shorter illnesses, while a longer period protects against the financially catastrophic case where someone never returns to work. Because it changes both the protection and the cost materially, it is advice.
Source: MoneyHub (https://www.moneyhub.co.nz/income-protection-insurance.html); Sorted, Retirement Commission (https://sorted.org.nz/guides/protecting-wealth/insurance-types/) · retrieved 2026-06-18 · rights: own-summary · drives: advice · status: draft
Benefit amount (percentage of income, and why it's capped)
The benefit amount is the monthly sum the policy pays while you are on claim. It is normally set as a percentage of your income rather than a free-choice figure, and the market maximum is commonly up to around 75% of your gross (pre-tax) income [VERIFIED-AI 2026-06-21: the ~75% indemnity cap is confirmed verbatim in published NZ insurer IP wordings (Partners Life Income Cover, Fidelity Life, AIA NZ Real Income Protection all state a 75% pre-disability-income cap for indemnity cover). Agreed-value contracts instead pay the scheduled benefit. Per-insurer specifics still vary. Sources: Partners Life, Fidelity Life, AIA NZ published IP PDS/policy wordings.]. So a policy is typically built to replace most, but deliberately not all, of your income.
The benefit is capped (it does not replace 100%) for two main reasons. First, to keep an incentive to return to work: if insurance paid your full income, there would be less financial reason to recover and go back, which insurers (and the cost of cover) cannot sustain. Second, because of tax: on the indemnity / loss-of-earnings policies that dominate the current market the benefit is taxable income (and premiums are usually tax-deductible), while legacy agreed-value benefits were typically tax-free with non-deductible premiums, so replacing a high percentage of gross pay can still leave you close to your normal take-home pay. The cap also interacts with offsets (below): other income you receive while on claim, such as ACC, can reduce the benefit so that total income from all sources stays within the policy's ceiling. Because the percentage chosen and the way gross income is defined directly determine what gets paid, this is advice, and the specific cap should be confirmed against current insurer terms before it drives a recommendation.
Source: MoneyHub (https://www.moneyhub.co.nz/income-protection-insurance.html); Sorted, Retirement Commission (https://sorted.org.nz/guides/protecting-wealth/insurance-types/) · retrieved 2026-06-18 · rights: own-summary · drives: information · status: draft
Offsets and other income
Offsets are the rule that other income you receive while on claim can reduce the income-protection benefit the insurer pays. The purpose is to keep your total income from all sources within the policy's overall ceiling (linked to the benefit percentage above), so you are not over-insured and paid more than the policy was designed to replace. Common offsets include ACC weekly compensation (very relevant in New Zealand, since ACC covers injury), payments from other income-protection or disability policies, and sometimes other regular income such as sick leave or certain other earnings, depending on the policy terms.
In practice this means the benefit you actually receive can be less than the headline benefit amount once offsets are applied. The clearest New Zealand example is injury: if ACC is already paying weekly compensation, the IP policy may pay only the top-up needed to reach the policy's ceiling rather than the full benefit on top of ACC. This is why mapping a client's other cover (ACC eligibility, any existing or group disability policies) matters when sizing income protection: over-insuring beyond what offsets will allow wastes premium, while ignoring offsets can leave a client expecting more than the policy will deliver. This is advice and depends on the specific policy's offset wording.
Source: MoneyHub (https://www.moneyhub.co.nz/acc-vs-income-protection-insurance.html); Sorted, Retirement Commission (https://sorted.org.nz/guides/protecting-wealth/insurance-types/) · retrieved 2026-06-18 · rights: own-summary · drives: advice · status: draft
Occupation classes
Insurers group jobs into occupation classes that reflect how risky the work is and how easy it is to define and verify a loss of earning ability. Broadly, lower-risk professional and office-based roles sit in the more favourable classes, while physically demanding, hazardous, or manual occupations sit in higher-risk classes; some very high-risk or hard-to-assess occupations may face restricted terms or be harder to cover. The occupation class affects the premium, the terms available, and sometimes which features or definitions apply, because the chance and likely length of a disability claim differ a lot between, say, an accountant and a roofer.
Occupation also interacts with the disability definitions (below): for some occupations the insurer assesses whether you can do your own occupation, while for others a broader "any occupation" test may apply, which is a materially different standard. Because of this, an accurate, honest description of the client's actual duties is important at application: it is a key disclosure, it drives the class and the price, and getting it wrong can affect a claim. Occupation class therefore shapes both eligibility and the recommendation, so it is advice.
Source: MoneyHub (https://www.moneyhub.co.nz/income-protection-insurance.html); Sorted, Retirement Commission (https://sorted.org.nz/guides/protecting-wealth/insurance-types/) · retrieved 2026-06-18 · rights: own-summary · drives: advice · status: draft
Premium structure: stepped vs level (concept only)
Income protection premiums are usually offered as either stepped or level, and the difference is about how the price behaves over time rather than any specific number (Bob never prices). With stepped premiums, the cost is recalculated as you get older, so it generally starts lower and rises over time as the risk of a claim increases with age. With level premiums, the cost is set to stay more stable over a defined period, so it usually starts higher than a stepped premium but is designed not to climb in the same age-driven way.
The trade-off is short-term affordability versus long-term cost and certainty. Stepped premiums are cheaper at the start, which suits cover that may only be needed for a while or where budget is tight now, but they can become expensive at older ages, which is exactly when people most want to keep the cover. Level premiums cost more early but can work out cheaper over the long run and make the cost predictable, which suits cover intended to be held for many years. Because this choice affects both affordability today and whether a client can keep the cover long term, it is advice. This section deliberately contains no rates or quotes.
Source: MoneyHub (https://www.moneyhub.co.nz/income-protection-insurance.html) · retrieved 2026-06-18 · rights: own-summary · drives: advice · status: draft
Underwriting basics: exclusions, loadings, and non-disclosure
Underwriting is how the insurer assesses an individual's risk before offering cover, using the information you provide about your health, occupation, lifestyle, and medical history. The outcome is not always a simple yes or no at the standard price. The insurer may apply an exclusion (it agrees to cover you but will not pay claims relating to a specific condition or body part, for example an existing back problem), or a loading (it charges a higher premium to reflect a higher-than-average risk, for example a health condition or a hazardous pursuit). Some applications are accepted on standard terms, some with exclusions or loadings, and some are declined.
The most important thing to get right at application is full and honest disclosure. New Zealand law places a duty on the applicant to take reasonable care not to make a misrepresentation when applying for cover, and getting this wrong has real consequences: non-disclosure or misrepresentation (failing to tell the insurer something relevant, or giving inaccurate information) can let the insurer decline a claim, reduce what it pays, or in serious cases cancel the policy, often at exactly the moment the client needs to claim. This is why an IP intake must capture an accurate health, occupation, and lifestyle picture, and why disclosure is treated carefully. For the legal duty itself, cross-reference the NZ regulatory and contract-law sections on the duty to take reasonable care and the Contracts of Insurance Act. Because underwriting terms shape what is recommended and what the client can rely on, this is advice.
Source: MoneyHub (https://www.moneyhub.co.nz/income-protection-insurance.html) · retrieved 2026-06-18 · rights: own-summary · drives: advice · status: draft
Total vs partial disability definitions
What counts as being "unable to work" is set by the policy's disability definitions, and these decide whether and how much a claim pays. Total disability generally means you are unable to work to the extent the policy requires (often tied to being unable to perform the important duties of your occupation, and not working), and it triggers the full benefit. Partial disability covers the in-between situation where you can do some work or have returned part-time but are still earning less because of the illness or injury; the policy then pays a reduced, often proportional, benefit reflecting the drop in earnings rather than nothing.
The reason partial-disability cover matters is that real recovery is rarely an all-or-nothing switch: many people return gradually or to reduced hours, and without a partial benefit they would lose support the moment they could do any work, which discourages a sensible phased return. The exact wording (for example whether disability is measured against your own occupation or any occupation, and how partial benefits are calculated) varies between policies and interacts with occupation class. Because the definition determines whether a claim pays at all and how much, comparing these definitions is central to the recommendation, so it is advice.
Source: MoneyHub (https://www.moneyhub.co.nz/income-protection-insurance.html); Sorted, Retirement Commission (https://sorted.org.nz/guides/protecting-wealth/insurance-types/) · retrieved 2026-06-18 · rights: own-summary · drives: advice · status: draft
Common features: indexation, recurrent disability, and waiver of premium
Beyond the core structure, income protection policies typically include several built-in features worth understanding. Indexation (or inflation adjustment) increases the benefit amount, and sometimes the cover, over time in line with an inflation measure, so the protection keeps pace with rising living costs and does not quietly shrink in real terms over the years it is held. Recurrent disability (sometimes called a recurrent-claim feature) deals with a relapse: if you go back to work after a claim and then become unable to work again from the same or a related cause within a defined window, the policy may treat it as a continuation of the original claim, so you do not have to serve a fresh wait period before payments resume.
Waiver of premium means that while you are on claim and receiving the benefit, the insurer waives (stops charging) your premiums, so you are not paying for the policy at the very time you have lost income, and the cover stays in force. Other partial-disability and rehabilitation-style features (covered under disability definitions above) support a phased return to work. These features change the real-world value of a policy, especially over a long benefit period or a long-held policy, so comparing them is part of choosing well. Because they affect what the client gets and how the recommendation stacks up, they are advice, and exact terms vary by policy.
Source: MoneyHub (https://www.moneyhub.co.nz/income-protection-insurance.html) · retrieved 2026-06-18 · rights: own-summary · drives: advice · status: draft
Adjacent product: life cover
Life insurance (life cover) pays a lump sum (or sometimes an income) when the insured person dies, and on some policies also on diagnosis of a terminal illness. The most common modern form is term life: cover for a set number of years, often matched to a need such as the length of a mortgage or the years until children are independent. The money is intended to clear debts like a mortgage, replace the lost income of the person who died, and give the surviving family financial breathing room.
The key difference from income protection is the trigger and the shape of the payout: life cover pays a one-off lump sum on death, whereas income protection pays an ongoing income while you are alive but unable to work. They solve different problems (loss of life versus loss of the ability to earn) and are often held together, with life cover handling the catastrophic "what if I die" and income protection handling the more probable "what if I can't work for a long time". This section is a foundation only; full life-cover product knowledge is out of scope for this file.
Source: Sorted, Retirement Commission (https://sorted.org.nz/guides/protecting-wealth/insurance-types/) · retrieved 2026-06-18 · rights: own-summary · drives: information · status: draft
Adjacent product: trauma / critical illness cover
Trauma insurance (also called critical illness or serious-illness cover) pays a lump sum if you are diagnosed with one of a defined list of serious conditions, commonly including cancer, heart attack, stroke, and other major illnesses or injuries set out in the policy. The payment is triggered by the diagnosis itself, not by whether you can work, and the lump sum can be used for anything: medical and treatment costs, paying down debt, modifying a home, funding time off, or simply absorbing the financial shock of a serious diagnosis.
The difference from income protection is both the trigger and the form: trauma pays a one-off lump sum on diagnosis of a listed condition regardless of work status, while income protection pays an ongoing income that depends on being unable to work. Trauma can complement income protection (for example a lump sum to cover immediate costs and the wait period, with IP replacing income over the longer haul), but it is not a substitute, because it pays only for listed conditions and does not respond to a long disability from a non-listed cause. This is a foundation section only.
Source: Sorted, Retirement Commission (https://sorted.org.nz/guides/protecting-wealth/insurance-types/) · retrieved 2026-06-18 · rights: own-summary · drives: information · status: draft
Adjacent product: total and permanent disability (TPD) cover
Total and permanent disability (TPD) insurance pays a lump sum if illness or injury leaves you permanently disabled and unable to work, generally on a defined and lasting basis rather than a temporary one. The lump sum is meant for the big, one-off financial consequences of a permanent disability: clearing the mortgage and other debts, adapting a home or vehicle, funding ongoing care, and providing capital to live on when a return to work is no longer realistic.
The difference from income protection is the permanence and the payout shape. Income protection pays an ongoing monthly income, including for temporary disabilities you may recover from, and (with a to-age-65 benefit period) can run for a long time. TPD pays a single lump sum and only when the disability meets a permanent, total standard, which is a much higher bar. The two can work together: income protection replaces income through recoverable illness or injury, while TPD provides capital for the worst-case permanent outcome. As with the others, TPD definitions (especially "own occupation" versus "any occupation") vary between policies. This is a foundation section only.
Source: Sorted, Retirement Commission (https://sorted.org.nz/guides/protecting-wealth/insurance-types/) · retrieved 2026-06-18 · rights: own-summary · drives: information · status: draft
Adjacent product: health / medical insurance
Health insurance (medical insurance) helps pay for private healthcare, in particular private hospital treatment, specialist consultations, surgery, and (depending on the policy) tests, scans, and sometimes everyday medical costs. Its value is faster access to treatment and choice of provider, rather than waiting in the public system, and protection against large private medical bills. It pays providers or reimburses costs for the treatment; it does not replace your income.
The difference from income protection is fundamental: health insurance covers the cost of getting treated, while income protection covers the loss of income while you are too unwell to work. A person off work with a serious illness can need both at once: health insurance to fund prompt treatment, and income protection to keep paying the bills during recovery. They are complementary, not interchangeable. This is a foundation section only.
Source: Sorted, Retirement Commission (https://sorted.org.nz/guides/protecting-wealth/insurance-types/) · retrieved 2026-06-18 · rights: own-summary · drives: information · status: draft