If you’re one of New Zealand’s many self-employed workers, you already know the upsides of being your own boss. You choose your clients, set your direction, and build something that’s yours. But self-employment also means you usually do not have employer-provided sick leave or ongoing salary support if illness or injury stops you from working.
Self-employed workers accounted for around 15.2% of New Zealand’s workforce in 2025, or about 422,751 workers, according to Infometrics regional economic data.
That’s where income protection insurance may be worth considering. It is designed to replace part of your income if you are unable to work for an ongoing period because of sickness or injury.
If you are self-employed, this can be especially important because ACC and private income protection insurance do different jobs. ACC may help if you suffer a covered injury, but it generally does not operate as broad illness cover.
Does Income Protection Insurance Cover the Self-Employed?
Yes, self-employed persons can apply for income protection insurance, subject to underwriting, occupation, income evidence, health history, and the insurer’s policy terms.
Income protection insurance is designed to pay a regular monthly benefit if you cannot work due to illness or injury. The amount you can insure is usually based on a percentage of your eligible income, and insurers commonly apply maximum benefit limits. Because policy definitions vary, it is important to check the wording before assuming how much would be paid or when a claim would qualify.
Cover may help with personal living costs such as mortgage payments, rent, groceries, utilities, and family expenses while you recover. It is not usually designed to cover all business costs, unless you have a separate business expenses or business overheads policy.
When setting up cover, the way your income is calculated matters. Common structures include:
Indemnity value: The claim payment is based on your income at the time of claim, or over a defined period before the claim. This may be cheaper, but it can create uncertainty if your income fluctuates.
Agreed value or agreed monthly benefit: The benefit amount is agreed when the policy is taken out, based on your financial records and the insurer’s requirements. This may give more certainty for people with variable income, although availability and terms depend on the insurer.
Is Income Protection Insurance Tax Deductible If I’m Self-Employed?
The tax treatment of income protection insurance depends on how the policy is structured and whether any claim payments would be taxable.
Inland Revenue says the cost of income protection insurance may be deductible if the insurance payout would be taxable. IRD also recommends asking your insurance provider whether your income protection insurance is deductible.
A safer way to think about it is:
If the benefit would be taxable: Premiums may be deductible.
If the benefit would be tax-free: Premiums are generally less likely to be deductible.
Do not rely on a general article to decide your tax treatment. Policy wording, ownership structure, business structure, and how benefits are paid can all matter. Confirm this with your accountant, tax adviser, or insurer before claiming premiums as a deduction.
Can You Get Short-Term Income Protection Insurance?
Income protection policies are usually customisable. Two of the most important choices are the waiting period and the benefit period.
The waiting period is how long you wait before payments start after you become eligible to claim. A shorter waiting period may provide faster support, but it usually costs more. A longer waiting period may reduce premiums, but you need enough savings or other support to cover the gap.
The benefit period is how long payments may continue if you remain unable to work and continue to meet the policy definition. Some policies may offer shorter benefit periods, such as one, two, or five years. Others may offer longer benefit periods, such as to age 65 or 70.
Shorter benefit periods can make premiums more affordable, but they also reduce the length of support available during a serious illness or long-term disability. Longer benefit periods usually provide more protection but come at a higher cost.
The right structure depends on your income, savings, debt, family responsibilities, occupation, health history, and how long your business could survive without you.
How Does Income Protection Compare to ACC Cover in NZ?
Many self-employed Kiwis assume that paying ACC levies means they do not need income protection insurance. That assumption can leave a gap.
ACC weekly compensation may pay up to 80% of your income if you cannot work because of a covered injury.
However, ACC is focused on injury cover. It is not a broad replacement for private illness cover. If you are unable to work because of an illness such as cancer, heart disease, stroke, or another non-accident-related condition, ACC may not provide weekly compensation unless the situation meets specific ACC cover criteria.
| Feature | ACC / CoverPlus Extra | Income Protection Insurance |
|---|---|---|
|
Covers accidents |
Yes, if the injury is accepted by ACC |
Usually yes, subject to policy wording and offsets
|
|
Covers illness |
Generally no |
Usually yes, subject to policy wording, exclusions, and underwriting |
|
Covers mental health |
Limited circumstances, depending on ACC criteria |
May be covered, subject to policy terms, exclusions, and medical underwriting |
|
Payout amount |
ACC weekly compensation may pay up to 80% of income for eligible injury claims |
Commonly based on a percentage of eligible income, subject to insurer limits and offsets |
|
Self-employed income certainty |
Standard CoverPlus may depend on liable earnings |
Private cover depends on policy type, financial evidence, and underwriting |
For self-employed workers and contractors, ACC offers CoverPlus and CoverPlus Extra. ACC describes CoverPlus Extra as an optional form of cover that allows eligible self-employed persons to choose an agreed level of cover within ACC’s limits. For the 1 April 2026 to 31 March 2027 year, ACC states that CPX cover can be applied for between $40,401 and $125,313, subject to ACC’s rules and approval requirements.
For some self-employed, it may make sense to review ACC CoverPlus Extra alongside private income protection insurance. The aim is not to double up unnecessarily, but to understand what would happen in both accident and illness scenarios. Private income protection policies often include offset clauses, meaning payments from ACC or other sources may reduce the insurer’s payment. The exact treatment depends on the policy wording.
Related and Complementary Covers
Income protection is only one part of a broader personal and business risk plan. Depending on your situation, other types of cover may also be relevant.
Mortgage repayment cover / mortgage protection: This is usually designed to help cover mortgage repayments rather than replace your full income. It may be more limited than income protection, but it can be useful where the mortgage is the main financial pressure.
Business expenses cover / business overheads cover: This is designed to help pay eligible fixed business expenses if you are unable to work due to sickness or injury. Examples may include rent, utilities, accounting fees, leased equipment, or staff costs, depending on the policy. This is different from general business interruption insurance, which often relates to disruption caused by insured business events such as property damage.
Total and Permanent Disability cover: TPD usually pays a lump sum if you become totally and permanently disabled and meet the policy definition. Definitions vary, especially between “own occupation” and “any occupation” wording.
Trauma / critical illness cover: Trauma cover generally pays a lump sum if you suffer one of the specified medical events listed in the policy, such as certain cancers, heart attacks, or strokes. It can help with treatment costs, recovery time, debt reduction, or business changes.
Key person and shareholder protection: These covers may be relevant where the business has multiple owners, relies heavily on one person, or needs a plan for ownership changes after serious illness, disability, or death.
Other Things to Consider if You’re Self Employed
Own Occupation vs Any Occupation
Policy definitions matter. An “own occupation” definition may pay if you cannot perform your specific occupation, while an “any occupation” definition may only pay if you cannot perform any suitable occupation based on your education, training, or experience.
This can make a major difference for trades, specialists, consultants, health professionals, and business owners whose work relies on specific physical or technical skills.
Pre-Existing Conditions
If you have a current or past medical condition, the insurer may apply an exclusion, charge a higher premium, delay cover, or decline the application. This depends on the condition, timing, severity, treatment, and insurer underwriting rules.
Be accurate and complete in your application. Non-disclosure can create serious problems at claim time.
Income Proof Matters
Self-employed income can be harder to prove than PAYE income. Keep clear financial records, including tax returns, financial statements, business bank records, invoices, and accountant-prepared documents.
These records may be needed when you apply, when your cover is reviewed, or when you make a claim.
Premiums Vary by Occupation
Premiums can vary significantly depending on your job, income, age, health, smoking status, benefit period, waiting period, and policy features. Manual work and higher-risk occupations usually cost more to insure than lower-risk office-based work.
Different insurers may also assess self-employed people differently, so comparing policy wording matters as much as comparing price.
Review Your Cover When Income Changes
Self-employed income can shift quickly. If your business grows, your original cover amount may no longer be enough. If your income drops, you may be paying for a benefit amount that could be harder to justify at claim time, depending on the policy type.
A regular review helps keep the cover aligned with your income, expenses, debt, and family needs.
What Happened to the New Zealand Income Insurance Scheme?
The New Zealand Income Insurance Scheme was previously proposed and consulted on, including discussion about contractors and self-employed workers. MBIE has since confirmed that work on the scheme stopped in February 2023.
That means self-employed persons should not assume a future government income insurance scheme will provide illness or disability income support. As things currently stand, private insurance remains one of the main options for self-employed who want income protection beyond ACC injury cover.
What Records Do Self-Employed Need for Income Protection Insurance?
If you’re self-employed, you usually need clear evidence of income when applying for cover or making a claim. This may include recent tax returns, financial statements, business bank records, invoices, profit and loss reports, and accountant-prepared documents.
The exact documents required will depend on the insurer, the policy type, and whether the claim is assessed on an indemnity or agreed value basis. Keeping accurate records makes it easier to prove your income and reduces the risk of delays at claim time.
The Bottom Line
Your income is one of your most important financial assets. If you are self-employed, a long illness or injury can affect both your household and your business.
ACC may provide support for covered injuries, but it should not be treated as complete income protection. Private income protection insurance may help fill some of the gap, especially for illness-related time off work, but the right structure depends on your personal circumstances, business setup, health, income, and budget.
Before choosing cover, compare the policy wording carefully and get personalised advice from a licensed financial adviser and insurance broker, such as Matt Willoughby here at OneStop Financial Solutions.
For tax treatment, confirm the position with your accountant or tax adviser.
