ACC vs income protection: the gap nobody explains

New Zealand’s Accident Compensation scheme is unusual internationally and genuinely good at what it does. In exchange for giving up the right to sue for personal injury, everyone in New Zealand gets cover for personal injury caused by accident — treatment costs, rehabilitation, and where the injury stops you working, weekly compensation.

The word doing the work in that sentence is “injury”. ACC is an accident scheme, not a health scheme. It responds when something happens to you — a fall, a crash, a strain with an identifiable cause, a treatment injury. It does not respond because you became unwell.

That is not a gap someone forgot to close. It is the deliberate design of the legislation, and it has been the design since the scheme began. But it is not what most New Zealanders believe. The widespread assumption that “ACC will cover me if I can’t work” is true for one category of misfortune and false for the larger one.

Consider the conditions that actually stop New Zealanders working for long periods. Cancer. Heart disease. Stroke. Multiple sclerosis. Depression and other mental health conditions. Chronic pain of gradual onset. Degenerative joint and spine conditions. Autoimmune disease. Almost none of these is an accident, and almost none of them is covered by ACC.

• Cancer of any kind, unless it arises from a specifically covered work-related exposure.
• Heart attack and stroke, other than in narrow circumstances connected to a covered injury or covered work-related cause.
• Mental illness, unless it is a covered mental injury arising from a physical injury or from specified circumstances.
• Most degenerative conditions — osteoarthritis, disc degeneration, wear that has built up over years.
• Illness of gradual onset generally, outside the specific occupational disease provisions.
• Ordinary sickness of every kind, however disabling.

For a household, the practical question is simple: if the income stopped for two years, would the reason more likely be an accident or an illness? For most people, over a working life, illness is the larger risk. ACC does not touch it.

Where ACC does accept a claim and you cannot work, weekly compensation is generally payable at around 80% of your pre-injury earnings, calculated under statutory rules and subject to a maximum set by legislation. There is an initial period at the start of an injury where an employer’s obligations and ACC’s begin at different points, and the calculation is different again for the self-employed and for people whose earnings are irregular.

• The rate is generally around 80% of pre-injury earnings, not 100%.
• There is a maximum insurable earnings level set by legislation, so higher earners are capped.
• Payments are taxed.
• Entitlement continues while you are unable to work because of the covered injury, and it stops when you can work again.
• ACC actively manages return to work, including rehabilitation and graduated return.
• For the self-employed, the calculation is based on past earnings unless a CoverPlus Extra agreement is in place.

Do not treat any figure you read online as current. Rates, caps, thresholds and the earnings calculation rules are set by legislation and regulation and are reviewed periodically. Check acc.co.nz for the numbers that apply now.

They are not competitors. ACC is compulsory and you have it whether you want it or not. Income protection is the layer that covers the risk ACC was never designed to carry, and most policies are built on that assumption.

Most New Zealand income protection policies offset ACC weekly compensation against the benefit they pay. If ACC is paying you, the insurer generally reduces its payment so that the combined amount is the benefit you insured, not the two added together. You are not paying twice for the same money, and you cannot claim twice for it either.

That has two consequences worth understanding when you set cover up:

1. 1Do not buy income protection expecting it to stack on top of ACC for an accident. For injury claims, income protection is topping up rather than doubling.
2. 2Do buy it for illness, where ACC pays nothing and the policy is carrying the whole risk on its own.
3. 3Read the offset clause, because what is offset varies — ACC, employer payments, other insurance, and sometimes other income.
4. 4Tell both ACC and your insurer about the other claim. Undisclosed parallel payments lead to clawbacks later.

Everybody is exposed to the illness gap. Some people are exposed twice over.

• The self-employed and contractors, who have no employer sick leave, no redundancy protection, and whose ACC weekly compensation is calculated from past earnings unless CoverPlus Extra is in place.
• People with variable or newly established income, where a past-earnings calculation understates what they actually earn now.
• Sole income earners in a household, where there is no second income to fall back on.
• People with a large mortgage and a small emergency fund, which is most first-home buyers.
• Older workers, for whom degenerative conditions become more likely and are largely outside ACC.
• Anyone whose employer sick leave entitlement is measured in days rather than months, which is most employees.

The uncomfortable version of this: the New Zealander most likely to say “I’m covered, we have ACC” is often the one with the least protection against the risk that is actually most likely to stop them earning.

Every New Zealand insurer writes income protection cover to its own wording, and the words are where the money is. Two policies that look identical on price can pay very differently when it matters. Closing that gap is the entire job of an adviser.

• An adviser will show you what your ACC position actually is, including how weekly compensation would be calculated on your particular earnings.
• For the self-employed they will raise CoverPlus Extra alongside private cover, because the two solve different halves of the problem.
• They read the offset clause with you before you buy, not after a claim.
• They can structure waiting periods so that private cover starts where sick leave and any ACC entitlement end.
• They know which insurers handle the injury-or-degeneration grey zone more sensibly than others.
• At claim time they can run an income protection claim alongside an ACC claim so offsets are handled correctly rather than clawed back.

There are three ways to buy life cover in New Zealand, and they are not equivalent. You can buy direct from one insurer, which means you see one product range and one underwriting appetite. You can buy through your bank, which usually means a single insurer’s product sold under the bank’s brand, often with narrower definitions. Or you can go through an adviser, who quotes several insurers at once and is required to put your interests first.

The premium you pay is the same either way. Insurers build adviser commission into their pricing whether or not an adviser is involved, so going direct does not get you a discount — it just removes the person whose job is to argue your corner at application and at claim time.

• An adviser can see which insurer is currently taking your health history on standard terms, and which one will load or exclude it.
• An adviser can structure cover across two insurers if that produces a better outcome than putting everything with one.
• An adviser handles the underwriting back-and-forth, and is the person who chases the claim when a family is least able to.
• An adviser has to document why the recommendation suits you, which is a written record you can hold them to.

We are a referral service, not an insurer. We do not quote premiums and we do not sell policies. What we do is put you in front of one licensed New Zealand adviser who can compare the market properly.

1. 1

   You tell us what you are looking at

   The form takes about a minute. Nobody asks for your medical history on a web form — that conversation happens with the adviser, properly, and only once you have decided to proceed.

2. 2

   An adviser calls you

   A licensed New Zealand adviser talks through your situation: who depends on you, what you owe, what you already have in place, and what you are actually worried about.

3. 3

   They compare the market

   The adviser quotes across the major insurers, checks which of them will take your health history on the best terms, and puts the options side by side in writing.

4. 4

   You decide, in your own time

   There is no obligation and no cost to you. If the answer is that you already have enough cover, a good adviser will tell you that.