ACC vs Income Protection: What's the Difference?

What is ACC?

ACC (Accident Compensation Corporation) is New Zealand's government-run no-fault accident insurance scheme. It covers all New Zealand residents and visitors for personal injuries caused by accidents.

ACC is funded through levies paid by employers, employees, and self-employed people. It provides cover for treatment costs, income replacement (at 80% of your pre-injury earnings), rehabilitation, and lump-sum payments for permanent impairment.

The key feature of ACC is that it is no-fault - you are covered regardless of who caused the accident. In return, you generally cannot sue for personal injury in New Zealand (with some exceptions).

What is Income Protection Insurance?

Income protection insurance (also called income continuance or disability insurance) is a private insurance product that pays you a regular income if you are unable to work due to illness or injury.

Unlike ACC, income protection covers both accidents and illness. Policies typically pay 55-75% of your pre-disability income for a set period, which can range from two years to age 65 depending on the policy.

Income protection is available from several NZ providers including Partners Life, Fidelity Life, AIA, and Asteron Life. Policies vary in terms of cover, waiting periods, and benefit periods.

Key Differences: ACC vs Income Protection

Understanding the differences between ACC and income protection helps clarify what each covers and where the gaps lie.

Gaps in ACC Cover

While ACC provides valuable cover, it has significant limitations that many people do not realise until they need to claim. The biggest gaps include:

• No illness cover - ACC does not cover you if you cannot work due to cancer, heart disease, stroke, mental illness (not caused by an accident), or any other medical condition. This is the most significant gap.
• Income cap - ACC weekly compensation is based on 80% of your earnings, but there is a cap on the maximum amount. High earners may find the ACC payment is substantially less than 80% of their actual income.
• Definition of incapacity - ACC may reduce or stop payments if they determine you can do some form of work, even if it is not your usual job. Income protection policies with "own occupation" cover protect you if you cannot do your specific job.
• Gradual process injuries - Some injuries that develop over time (like repetitive strain) can be difficult to get accepted by ACC as they may be classified as a condition rather than an accident.
• Mental health limitations - ACC covers mental injury caused by certain events (such as workplace sexual harassment or criminal acts), but does not cover general mental health conditions like depression or anxiety unless directly caused by a covered accident.

Who Should Consider Income Protection?

Income protection insurance may be worth considering for people who rely on their income and would face financial hardship if they could not work for an extended period. Situations where income protection is commonly chosen include:

The cost of income protection varies based on your age, health, occupation, income level, waiting period, and benefit period. According to Sorted.org.nz, you can manage costs by choosing a longer waiting period or a shorter benefit period.

It is worth noting that some employers provide group income protection or sick leave benefits that partially fill the ACC gap. Check your employment agreement before purchasing a policy to understand what cover you already have.

• Self-employed people who do not have employer-provided sick leave
• Primary income earners with a mortgage or dependants
• People in occupations with higher illness risk
• Those with limited savings who could not sustain themselves without income
• People whose lifestyle or financial commitments require more than the ACC payment