Income Protection Offset Clauses in NZ (2026): How ACC and Other Income Cut Your Payout

Offset (integration) clauses can quietly cut your income protection payout when ACC, sick pay or other cover already pays. Here is how they work in 2026, why ACC at 80% can leave little for the insurer, and what to check in your wording.

This article is general information only and is not personalised financial advice. It does not take into account your particular financial situation, goals or needs. Before acting, consider whether it's right for you and seek advice tailored to your circumstances.

Most people read an income protection policy and see the benefit amount, say 75% of their income, and assume that is what lands in their account if they cannot work. Often it is not. Many policies contain an offset clause (also called an integration clause) that reduces the benefit by other income you receive while on claim, including ACC weekly compensation, sick pay, and sometimes other insurance.

This matters because ACC pays at a higher rate than most income protection policies, so on a fully offset policy an accident claim can leave the insurer paying little or nothing. This guide explains how offset clauses work in New Zealand, what gets offset, and what to check in your wording so you are not paying premiums for cover you cannot fully claim.

TL;DR: what does an income protection offset clause do?

TL;DR: An offset (integration) clause reduces your income protection payout by other income you get while off work, ACC, sick leave, sometimes other cover, so your total income does not exceed a set ceiling (often around 75% of pre-disability income). Because ACC replaces up to 80% of pre-injury earnings ¹, a fully offset policy can pay little or nothing on an accident claim. Whether this is a problem depends on your policy wording and how you are structured.

The key number is 80% versus roughly 75%. ACC weekly compensation replaces up to 80% of pre-injury gross weekly earnings for a covered injury ¹, while income protection benefits are typically capped near 75% of pre-disability income ⁶. On a fully integrated policy that offsets ACC, the higher ACC payment can wipe out the income protection benefit for an accident, which is why the type of policy you hold matters so much.

What is an offset (integration) clause in income protection?

An offset clause is a term in the policy that says: if you receive other income while you are on claim, your benefit will be reduced so that your total income from all sources does not go above a set limit.

The purpose is to stop you being better off financially while off work than you were while working, which insurers see as both a moral hazard and a pricing problem. The principle is the same one ACC applies to top-ups: an employee can use sick or annual leave to lift ACC weekly compensation from 80% up to 100% of usual pay, but total income from all sources is not allowed to exceed 100% of usual pay ⁴. Income protection offset clauses enforce a similar ceiling, usually lower, often around 75%.

What counts as "other income" varies by policy. That is the whole game, and it is why two policies with the same headline benefit can pay very differently on the same claim.

Which types of income reduce your income protection payout?

It depends entirely on the wording, but the income sources most commonly named in NZ offset clauses are below. Always read the definition of "other income" or "offsets" in your own policy, this list is general and not exhaustive.

The two that catch people out are ACC weekly compensation and other insurance. Both can substantially reduce, or eliminate, what your income protection policy actually pays. Whether a benefit is reduced, and by how much, depends on the policy's terms, definitions and your circumstances, so treat the table as a starting point for reading your wording, not a conclusion about your cover.

How does ACC weekly compensation offset your IP benefit?

This is where the numbers do the most work, so it is worth walking through slowly.

ACC weekly compensation replaces up to 80% of pre-incapacity gross weekly earnings for an injury ACC covers ¹. Income protection benefits are typically capped near 75% of pre-disability income ⁶. So for an accident that ACC accepts:

• ACC pays roughly 80%.
• Your income protection benefit target is roughly 75%.
• On a fully offset (integrated) policy, the insurer deducts the 80% ACC payment from the 75% target.

Because 80% is higher than 75%, the offset can leave nothing for the income protection insurer to pay on an accident claim ⁶. You can be paying premiums for a benefit that, for accidents, ACC already exceeds.

Two things change that picture. First, ACC has a cap: the maximum gross weekly compensation in force at the date of this article is $2,418.55 ². Income above that cap is not covered by ACC, so a higher earner can still have an income protection benefit payable on the slice above the ACC ceiling, even on an integrated policy. Second, ACC pays nothing for illness ⁶, so the offset only applies to accidents. For illness claims, which drive most long-term work absences, the offset usually does not bite at all because there is no ACC payment to deduct.

Figure: what gets offset against your IP benefit

This is illustrative only, based on insurer PDS norms, to show the mechanics. It is not a quote, a prediction, or a reflection of any specific policy.

Illustration only, based on insurer PDS norms, assuming earnings below the ACC cap and a fully offset policy. Actual amounts depend on your policy wording, your earnings, the ACC cap of $2,418.55 ², tax, and your circumstances. Returns and payouts are not guaranteed; cover depends on the policy terms and your disclosure.

The point of the figure is not the dollar amounts. It is the shape: on a fully offset policy, accidents may pay little because ACC pays more, while illness, which ACC does not cover ⁶, is where the policy does its real work.

Does sick leave or employer top-up affect your claim?

Sometimes, but usually only up to a ceiling. Many policies are written so that your benefit plus any other income (including sick pay) is not allowed to exceed a set percentage of your usual pay.

ACC's own rules are a useful reference point here. An employee can use sick leave or annual leave to top up ACC weekly compensation from 80% to 100% of usual pay, and this has no effect on their ACC compensation, but total income from all sources must not exceed 100% of usual pay ⁴. Income protection offset clauses tend to apply the same logic at a lower ceiling.

A practical consequence: if you have generous sick leave and a short wait period, your sick pay may cover the early weeks of a claim, and the policy's offset may mean little or no benefit is payable until that sick leave runs out. Lining up your wait period with how long your sick leave and ACC's first-week rules cover you can avoid paying for cover that overlaps with pay you already receive. Remember ACC does not pay for the first 7 calendar days of incapacity; for a work injury the employer must pay 80% for that first week, and ACC weekly compensation begins from day 8 ³.

What is the difference between offset and supplementary cover?

This is the distinction that decides whether ACC eats your benefit or sits alongside it. NZ income protection is generally sold in one of two structures.

General descriptions of common structures; product names and exact terms vary by insurer. Whether a claim is paid, and how much, depends on the terms, conditions, exclusions, stand-down periods and underwriting of the specific policy, and on your disclosure. This is a summary only, always read the policy wording / product disclosure statement.

Neither structure is "better" in the abstract. An integrated policy can be sensible and cost-effective for someone whose main fear is a long illness, since it leans on ACC for accidents and keeps the premium down. Supplementary cover can suit a higher earner whose income sits above the ACC cap of $2,418.55 per week ², where ACC leaves a real gap to fill. The honest answer for most people depends on their income, how they are taxed, and what they are most worried about, which is a conversation, not a rule.

Can you stack income protection and ACC, or is that pointless?

You generally cannot "stack" them to be paid twice for the same accident on an integrated policy, the offset clause exists precisely to prevent that. But that does not make holding both pointless, for two reasons.

First, illness. ACC covers injury but generally not illness ⁶. Income protection is the only one of the two that pays a benefit for illness, and illness is behind most long-term absences from work. Your income protection policy is not redundant just because ACC handles accidents; it is doing a different job.

Second, the ACC cap and the gap above it. ACC's maximum gross weekly compensation is $2,418.55 ², which corresponds to earnings of roughly $157,000 a year. Income above that is uncovered by ACC, so for higher earners a supplementary policy fills the slice ACC cannot reach, even for accidents. We cover that band in detail in our guide to the ACC weekly compensation cap and the gap above it, and the broader limits of relying on ACC in why ACC is not income protection.

So the question is not "stack or don't." It is "what structure means I am covered for illness, covered above the ACC cap, and not paying twice for accidents ACC already handles." That is a policy-design question worth getting right.

One technical note for fair comparison: ACC weekly compensation and income protection benefits are generally treated as taxable income in New Zealand ⁷, so when you compare the 80% ACC figure with a 75% income protection target, compare them on a like-for-like (gross or net) basis. Smiths Financial does not provide tax advice, this is general information only; for your tax position, consult an appropriately authorised professional.

How do you avoid paying premiums for cover you can't fully claim?

The goal is to match the policy structure to the risks you actually carry, so you are not paying for accident cover ACC already provides while leaving your illness risk or above-cap income exposed. Things people in this situation often weigh up:

• Whether your policy offsets ACC at all. Some are fully integrated; some are written to top up above ACC. The wording tells you which.
• Where their income sits relative to the ACC cap of $2,418.55 per week ². Above it, ACC leaves a gap even on accidents; below it, ACC may exceed an integrated benefit for accidents.
• How long their sick leave and savings buffer last. A longer wait period can cut the premium if other income (sick pay, ACC's first-week employer payment ³) covers the early weeks. We model that trade-off in income protection vs savings buffer.
• Whether the main worry is illness or accident. ACC handles accidents; only income protection handles illness ⁶.

There is no single right answer, and a benefit that looks reduced on paper for accidents may be perfectly sensible if the policy is doing its real work on illness. Personalised advice is about working through what fits your income, structure and concerns, rather than applying a rule of thumb.

What should you check in your policy wording today?

You can read a lot of this off your own document. Look for these sections.

01. The "other income" or "offsets" definition. This lists exactly what reduces your benefit. Check whether ACC weekly compensation is named.

02. The benefit ceiling. Find the percentage your total income is capped at (often around 75%), and whether it is of pre-tax or after-tax income.

03. ACC treatment specifically. Is the policy integrated with ACC (offsets it) or supplementary (tops up above it)? This single point drives accident outcomes.

04. The wait period. Line it up against your sick leave and ACC's day-8 start ³ so you are not insuring weeks already covered by pay.

05. The cap interaction. If you earn above roughly $157,000, check whether the policy covers the slice above the ACC cap of $2,418.55 ².

06. Indemnity vs agreed value. Whether your benefit is set at claim time off recent earnings, or agreed up front, affects how offsets and proof of income work.

If reading the offset clause raises more questions than it answers, that is normal, this is some of the densest language in any insurance contract. It is also exactly the kind of thing worth a second read with someone who reviews these wordings regularly.

Frequently asked questions

Does ACC reduce my income protection payout in New Zealand? On many policies, yes. If your policy is integrated with ACC, it contains an offset clause that deducts ACC weekly compensation from your benefit. Because ACC replaces up to 80% of pre-injury earnings ¹ while income protection targets around 75% ⁶, a fully offset policy can pay little or nothing on an accident claim, though it still pays for illness, which ACC does not cover ⁶. Whether your benefit is reduced depends on your specific wording.

What is an integration clause in income protection? "Integration clause" is another name for an offset clause. It integrates your income protection benefit with other income, mainly ACC, so your total income from all sources stays within a set ceiling. The idea mirrors ACC's own rule that total income from all sources must not exceed 100% of usual pay ⁴; income protection clauses usually set a lower ceiling.

If ACC pays for accidents, why hold income protection at all? Because ACC covers injury but generally not illness ⁶, and illness drives most long-term absences from work. Income protection is the only one of the two that pays for illness. It also covers income above the ACC cap of $2,418.55 per week ² for higher earners. So the two products cover different gaps rather than duplicating each other.

Can I buy cover that is not reduced by ACC? Some policies are written as supplementary or top-up cover designed to pay above ACC rather than offset it. These generally cost more. Whether that extra cost is worthwhile depends on your income relative to the ACC cap and how you are structured. The terms vary by insurer, so this is worth checking against the specific product disclosure statement.

Are ACC and income protection payments taxed the same way? Both ACC weekly compensation and income protection benefits are generally treated as taxable income in New Zealand ⁷. When comparing the 80% ACC figure with a 75% income protection target, compare on a like-for-like gross or net basis. For your specific tax position, consult an appropriately authorised professional, this is general information only.

Does sick leave count against my income protection benefit? It can, up to a ceiling. Many policies cap total income (benefit plus sick pay and other sources) at a set percentage of usual pay. ACC applies the same principle at 100% of usual pay ⁴. In practice, generous sick leave with a short wait period can mean little benefit is payable until that leave is used up.

General information, not personalised financial advice. Seek advice tailored to your situation before acting. Craig Smith Business Services Ltd (FSP712931), trading as Smiths Financial, holds a Class 2 licence issued by the Financial Markets Authority to provide financial advice on personal risk insurance, health insurance, general insurance, KiwiSaver and managed funds, and is a member of the Financial Dispute Resolution Service (FDRS), a free and independent dispute resolution scheme. We are generally paid by commission from the insurer when you take out cover through us; this does not change the premium you pay, and we manage any conflicts of interest in line with our duty to prioritise your interests, full details in our Disclosure. 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. Figures are correct as at 17 January 2026 and can change. Written by Henry Smith, Financial Adviser; reviewed by Craig Smith, Principal Adviser, FSP712931. Last reviewed 17 January 2026.