ACC vs Income Protection
ACC and Income Protection can both provide financial support if you are unable to work, but they cover different situations.
ACC generally provides weekly compensation when you are unable to work because of a covered injury. Income Protection is designed to provide an income when you are unable to work because of illness or injury, subject to the terms of your policy.
For many New Zealanders, the two can work alongside each other rather than being alternatives.
ACC is an important part of New Zealand's financial safety net. If you suffer a covered injury and meet ACC's eligibility requirements, you may be entitled to weekly compensation of up to 80% of your relevant pre-injury income, before tax and other deductions. How ACC calculates this depends on your employment situation. For self-employed people, this will generally be based on earnings declared, or intended to be declared, to Inland Revenue.
However, ACC is primarily designed for injuries - it does not generally provide weekly compensation when you are unable to work because of an illness.
Income Protection can help fill this gap. Depending on the policy, it can provide a regular monthly benefit if you are unable to work because of an illness or injury.
Importantly, Income Protection is often designed to take ACC payments into account. This means you generally won't receive your full ACC payment and the full Income Protection benefit on top of it. The exact offset depends on the insurer and policy wording.
An example
Imagine Sarah earns $6,000 p/month and has Income Protection with a sum insured of $4,000 p/month if she is unable to work.
Sarah suffers a serious back injury and is eligible for ACC weekly compensation.
If ACC pays her approximately 80% of her relevant pre-injury income, this could be around $4,800 a month before tax, although the actual ACC calculation and payment will depend on her circumstances.
The type of Income Protection that Sarah has, ACC is an offset of her income protection payment. This means that what ACC pays, directly reduces that amount that her Income Protection would pay.
In this situation, Sarah would not receive $4,800 from ACC plus another $4,000 from Income Protection. Instead, her Income Protection does not pay while the ACC payment is meeting the income replacement amount. This is because the ACC benefit is more that the sum insured.
Now imagine Sarah develops a serious illness and is unable to work.
Because this isn't an ACC-covered injury, ACC may not provide weekly compensation. Her Income Protection policy could potentially provide a benefit instead, subject to its definitions, waiting period and other policy terms.
This is one of the key differences between ACC and Income Protection: ACC can provide valuable protection for injuries, while Income Protection can help provide a broader safety net for both illness and injury.
Why It Matters
It is easy to assume that ACC replaces your income if you cannot work. In reality, what happens to your income depends on why you cannot work, how your income is calculated, and what other protection you have in place.
For business owners and self-employed people in particular, understanding how ACC calculates earnings can be important.
Income Protection can provide another layer of financial protection, particularly for situations that fall outside ACC's scope.
Common Misunderstandings
“ACC covers 80% of my income, so I don't need Income Protection.”
Not necessarily. ACC is primarily for covered injuries and does not generally provide weekly compensation for illness.
“ACC covers 80% of whatever I am earning now.”
Not necessarily. ACC uses specific calculation rules, and for self-employed people the calculation generally relates to earnings declared or intended to be declared to Inland Revenue.
“I'll receive 80% from ACC plus my full Income Protection benefit.”
Not necessarily. Income Protection policies often take ACC payments into account, although the exact treatment depends on the policy.
“Income Protection is only useful if I have an accident.”
No. Depending on the policy, Income Protection can provide cover for eligible illness as well as injury.
FAQs about ACC vs Income Protection
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Generally, ACC provides injury-related support rather than weekly compensation for ordinary illness. There are exceptions to this in regards to Work-Related Gradual Process / Diseases, Workplace Traumatic Events or Infections and treatment Injuries (Medical Misadventure).
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ACC may pay up to 80% of relevant pre-injury income, subject to ACC's rules and the way your income is calculated.
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For self-employed people, weekly compensation is generally based on earnings declared, or intended to be declared, to Inland Revenue, subject to ACC's rules. There are exceptions, such as CoverPlus Extra.
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Often, yes. Many Income Protection policies take ACC payments into account. The exact calculation depends on your policy wording. This is known as an offset.
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Because ACC and Income Protection are designed to address different risks. Income Protection can provide a broader safety net where you are unable to work because of an eligible illness or injury.
Understanding the difference between ACC and Income Protection is an important part of protecting your income.
At New Vision Financial Services, we can help you understand what ACC may provide, where the gaps could be, and how Income Protection could work alongside your existing protection.
Your income is one of your most valuable assets. It is worth understanding how it would be protected if you couldn't work.