Income Protection for Commission and Variable Income in NZ (2026): Proving Earnings That Move

Commission, bonuses and seasonal pay make income protection harder to get right. Here is how insurers average a moving income, why agreed value matters, and what records prove a claim.

If your pay moves around — commission, bonuses, a seasonal trade, a draw plus profit share — income protection is easy to get slightly wrong, and the error only shows up at claim time. A steady salary is simple to insure and simple to prove. A moving income is neither. Insurers handle it by averaging your earnings over a stretch of time, and the way they average, the type of cover you hold, and the records you can produce all change what actually gets paid.

This guide walks through how insurers calculate cover for commission and variable earners, why the payout basis matters more for you than for anyone on a flat salary, and what you need to keep so a claim is assessed on the income you really earn.

TL;DR: Insurers average commission, bonus and seasonal income — often over the 12 months before a claim under indemnity cover ⁹ — so one weak year can cut your payout. Income protection typically replaces up to about 75% of assessed income ⁸. Agreed value fixes the insured benefit when you apply, removing the claim-time re-test ⁹.

How do insurers calculate income protection for commission earners?

For a salaried applicant, "income" is one number on a payslip. For a commission or variable earner it is a range, so insurers reduce that range to an average. They take your earnings over a defined window — commonly the most recent full financial year, or an average of the last two or three years — and use that figure as your insurable income.

Two things follow from that.

• The window matters. A short window (one recent year) captures whatever that year happened to be — good or bad. A longer window (two to three years averaged) smooths the bumps but can lag a genuine rise in your earnings.
• The timing of the test matters even more. Some policies fix that average when you apply. Others re-run it when you claim, against whatever your recent earnings turn out to be. That single distinction — agreed value versus indemnity — is the one that catches variable earners out, and we come back to it below.

The headline benefit cap is broadly similar across the market: income protection generally replaces up to about 75% of your assessed pre-disability income ⁸, paid as a taxable monthly amount until you can return to work or reach a set age such as 65 or 70, depending on the policy. The question for a variable earner is not the percentage — it is which income figure that percentage is applied to.

Why does variable income make indemnity cover risky at claim time?

Indemnity cover does not lock anything in when you buy it. It assesses your benefit against your actual income at claim time, typically your earnings in the 12 months before you became disabled ⁹. For a salaried person that re-test usually lands on the same figure they expected. For a commission earner it can land anywhere.

That is the risk. If you happen to claim after a soft 12 months — a quiet market, a lost account, a seasonal trough, a period where you eased off — the insurer assesses your benefit against that lower recent figure, not against your long-run earning power. Your payout shrinks to match the worst part of your cycle, at exactly the moment you can least afford it.

This is the same structural issue that affects the self-employed and contractors, whose income is rarely flat from year to year. The protection runs the other way too: if your recent year was strong, indemnity can assess on the higher figure, up to the policy maximum. The point is that indemnity hands the timing risk to you, and variable income makes that timing far less predictable. Our piece on income protection for contractors and the illness gap covers the contractor angle in more depth.

How are bonuses, commission and seasonal income averaged?

Most insurers will include bonus and commission in your insurable income, but how they treat each component varies, and the definition in the policy wording is what governs a claim. As a general pattern:

• Base plus commission is usually combined and averaged over the assessment window.
• Irregular bonuses are often averaged over a longer period (two to three years) so a single large or absent bonus does not distort the figure.
• Seasonal income is annualised — the insurer looks at the full year's earnings rather than your best or worst month — so a strong summer and a lean winter net out to one figure.

The figure below illustrates how a moving monthly income gets reduced to a single assessed benefit. The numbers are illustrative, not a quote, and your own policy's definitions are what apply to a real claim ⁹.

Figure: How a fluctuating income is averaged for a claim

_Source: illustrative; averaging windows and definitions vary by insurer PDS ⁹. Returns and payouts depend on the specific policy terms._

The pattern is the consistent one for variable income: a longer averaging band tends to produce a fairer, steadier figure, while an indemnity re-test on a single recent year can land on a trough.

Should commission earners choose agreed value cover?

Agreed value fixes the insured monthly benefit when you apply, based on income you prove up front, and removes the claim-time re-test entirely ⁹. For someone whose income moves, that is the feature doing the real work — you evidence your earnings once, while your records are good, and the agreed figure is what the insurer pays regardless of how your recent year looked.

It is not a free upgrade. A few honest trade-offs:

• Agreed value generally carries a higher premium for the same headline benefit, because the insurer is committing to a figure rather than re-testing it.
• The underwriting is more involved — you have to satisfy the insurer on your income at application, which means clean records up front.
• Availability has narrowed. Agreed value has become less widely offered on new policies following FMA and industry scrutiny, so it should be confirmed against the insurer's current product disclosure statement rather than assumed ⁹.

Whether the extra premium is worth paying depends entirely on how variable and how provable your income is. For a steady salary it is largely theoretical. For commission and seasonal earners it is often the difference between the cover you thought you had and a re-calculated one. We compare the two bases in full in agreed value vs indemnity income protection.

How does a recent bad year affect your payout?

This is the edge case that surprises variable earners most, and it cuts across both income protection and ACC.

On indemnity income protection, a weak recent year lowers the income the insurer re-tests against, so the benefit is calculated on the trough rather than your long-run average ⁹. On agreed value, the agreed figure stands and the dip is ignored ⁹.

ACC works on a similar logic for the self-employed. ACC weekly compensation replaces up to 80% of pre-injury gross earnings ¹, but for self-employed CoverPlus it is based on your most recently completed financial year's taxable income ¹. So a self-employed person who has a low-income year and is then injured can have their ACC payout pinned to that low year — the same trap, in a different system. That is one of the main reasons variable-income earners look at ACC CoverPlus Extra, covered below.

What records do you need to prove a variable income claim?

For agreed value, the proof happens at application; for indemnity, it happens at claim. Either way, thin records are where variable-income claims get stuck. The more of the following you can produce, the cleaner the assessment:

• Personal tax returns (IR3) and IRD income summaries for the last two to three years.
• Financial statements if you trade through a company or partnership — profit and loss, and your drawings or shareholder salary.
• Commission statements or remuneration letters showing how your variable pay is structured and paid.
• Bank statements corroborating the deposits, especially for seasonal or lumpy income.
• For a recent rise, evidence of the new arrangement (a contract, a new commission schedule) rather than relying on a single strong month.

A practical point: the time to assemble these is when you apply, not when you are unwell and trying to lodge a claim. Agreed value effectively forces that discipline up front, which is part of its appeal for people whose income is hard to document after the fact.

How does ACC CoverPlus Extra help variable-income self-employed?

ACC CoverPlus Extra (CPX) is the ACC equivalent of agreed value, and it solves the same problem. It lets self-employed people and non-PAYE shareholder-employees agree a fixed level of weekly compensation in advance, paid regardless of your actual income at claim time ⁵. With the Full compensation option, ACC pays 100% of the agreed cover (less tax) ⁵ — which removes the "most recent financial year" re-test that catches variable earners under standard CoverPlus.

A few current parameters to weigh up:

That two-year cap is the catch worth knowing: for a long-term injury, CPX weekly compensation stops after two years, and only NZ Superannuation continues for those eligible ⁷. It is also injury-only cover — like all of ACC, it does not pay for illness. That is exactly the gap income protection is built to fill, and why many self-employed people hold both. We set out the ACC comparison in ACC CoverPlus vs CoverPlus Extra for the self-employed.

How do you structure cover so it reflects your real earnings?

There is no single right structure — it depends on how your income is made up and how stable it is. A few questions usually do more work than a blanket rule:

• How variable is your income, year to year? The more it moves, the stronger the case for agreed value and for a longer averaging window, so a single soft year cannot define your benefit ⁹.
• Can you prove your income now? If your records are clean today but might be messy at claim time, locking the figure in up front is worth weighing ⁹.
• Are you self-employed and injury-exposed? CoverPlus Extra can fix your ACC figure for accidents, while income protection covers illness — the two address different risks ⁵⁸.
• Is your income growing? A locked agreed figure can fall behind a rising income, so cover that can be increased over time, or reviewed regularly, matters more for variable earners than most.

The most expensive mistake here is not picking the "wrong" basis — it is insuring an averaged-down or out-of-date figure without realising it, and only finding out when a claim is assessed on the worst year of your cycle.

Because we are independent, we compare how each major NZ insurer — Partners Life, Fidelity Life, Asteron Life, Chubb and AIA among them — defines insurable income, treats bonus and commission, and offers agreed value, rather than fitting you to one company's averaging rules. Not every provider in the market is shown here, and each insurer's product disclosure statement sets out its own definitions.

Frequently asked questions

How do insurers work out income protection for commission earners? They average your earnings over a defined window — commonly the most recent full financial year, or an average of two to three years — and apply the benefit percentage (up to about 75%) to that figure ⁸. Whether the average is fixed at application or re-tested at claim depends on whether you hold agreed value or indemnity cover ⁹.

Does a bad year reduce my payout? On indemnity cover it can, because the insurer re-tests your actual income in the 12 months before a claim, so a soft recent year lowers the figure your benefit is based on ⁹. On agreed value, the figure you proved up front stands and the dip is ignored. ACC CoverPlus has the same issue for the self-employed, because it uses your most recent completed financial year ¹.

Is agreed value better for variable income? For genuinely variable income it often suits, because it removes the claim-time re-test and lets you prove your earnings once while your records are good ⁹. The trade-offs are a higher premium, more involved underwriting, and narrower availability — so it is worth confirming against the insurer's current product disclosure statement.

How is bonus and commission income treated? Most insurers include base, commission and bonus in insurable income, often averaging irregular bonuses over a longer period and annualising seasonal income, but the policy wording defines exactly what counts ⁹. Keeping tax returns, financial statements and commission records makes this far easier to evidence.

Does ACC CoverPlus Extra help if my income moves? Yes — it lets self-employed people agree a fixed level of weekly compensation in advance, paid regardless of actual income at claim time, with the Full option paying 100% of agreed cover less tax ⁵⁶. Note it is injury-only and capped at two years per claim ⁷, so many people pair it with income protection for illness.

General information, not personalised financial advice. It does not take into account your particular financial situation, goals or needs. Seek advice tailored to your circumstances before acting. Whether a claim is paid depends on the terms, conditions, exclusions, stand-down periods and underwriting of the specific policy, and on your disclosure — always read the policy wording. KiwiSaver and ACC figures are set by the Government and can change; figures are correct as at 2 June 2026 — check current rules at acc.co.nz and ird.govt.nz. Craig Smith Business Services Ltd (FSP712931), trading as Smiths Financial, holds a Class 2 licence issued by the Financial Markets Authority and is a member of the Financial Dispute Resolution Service (FDRS). We are generally paid by commission from the insurer when you take out a policy through us; this does not change the premium you pay. Written by Henry Smith, Financial Adviser; reviewed by Craig Smith, Principal Adviser. Last reviewed 2 June 2026.