Income protection explained
Agreed value vs indemnity income protection in NZ.
The two terms describe different ways an insurer may work out an income-protection benefit. The name matters, but the policy wording matters more.
Income protection is generally designed to pay a monthly benefit if illness or injury leaves someone unable to work. Before comparing prices, it helps to know how a policy would work out the monthly benefit if a claim were accepted.
In New Zealand, two common benefit structures are agreed value and indemnity value. They can sound technical, but the underlying question is straightforward: is the monthly benefit largely set when cover starts, or assessed against income when a claim happens?
Agreed value: the insured benefit is set up front
With agreed-value income protection, the monthly benefit is generally agreed when the policy is put in place. An insurer will normally require evidence of income as part of the application and underwriting process.
That can be useful where someone wants a clearer starting point for the benefit shown in their policy schedule. It does not mean every claim is automatic or that every policy works the same way. The person still needs to meet the policy's disability definition and all other claim requirements. Other income or benefits may also affect what is payable, depending on the wording.
Indemnity value: income is assessed at claim time
With indemnity income protection, the insurer generally assesses relevant income around the time of claim, using the definition and assessment period in the policy. The monthly benefit is usually limited by both the insured amount and the income calculation.
This can suit people whose current income is a better reflection of what they need to protect. It also means records matter: the policy wording will set out which income counts, the period used for assessment and the evidence the insurer may request.
The practical difference
Agreed value is generally about a benefit set when cover starts. Indemnity is generally about a benefit assessed against income at claim time. Neither label tells you everything about the cover. Always read the schedule and wording for the actual policy.
What both types still have in common
The benefit structure is only one part of an income-protection policy. Whether cover may pay, for how long and at what amount also depends on the terms you choose and the insurer's wording.
- Wait period: the period of disability before a benefit may start.
- Benefit period: the maximum length of time a benefit may be payable for a claim, subject to the policy terms.
- Disability definition: the wording that describes when someone is considered unable to work.
- Partial disability: how the policy treats reduced capacity or a gradual return to work.
- Offsets: other payments or income that may reduce a benefit, if the policy provides for them.
- Indexation and review features: whether and how cover may change over time.
When the distinction becomes especially important
The detail can matter more for people with variable income: business owners, contractors, commission-based employees, professionals moving between roles, or anyone whose recent earnings do not neatly represent their longer-term position. It can also matter when reviewing an older policy, because product features and definitions can change over time.
That is why a review should start with the actual policy schedule and wording, not just the headline monthly benefit. If you are self-employed, our guide to income protection for self-employed people explains some of the additional questions to consider.
Questions worth asking about an existing policy
- Is the benefit described as agreed value, indemnity value or another structure?
- What income definition and assessment period does the policy use?
- What wait period and benefit period are shown in the schedule?
- How does the policy define total and partial disability?
- What other payments or income could affect the benefit?
- Has the cover kept pace with your income and commitments?
Agreed value is not automatically better
There is no universal winner. A suitable structure depends on the person's income pattern, existing cover, budget and the detail of the policy wording. Comparing one policy only by the benefit amount, or another only by the premium, can miss the important part.
For a wider explanation of how life, trauma and income protection do different jobs, read our life insurance and income protection guide.
Quick answers
What is agreed-value income protection?
It generally sets the insured monthly benefit when the policy starts, subject to the policy wording and claim eligibility. The evidence required differs between insurers and policies.
What is indemnity income protection?
It generally assesses the benefit at claim time using income before disability, subject to the policy wording and the insured maximum.
Is agreed value always better than indemnity income protection?
No. The appropriate structure depends on the person's income pattern, policy wording, affordability and circumstances.
Not sure what your policy says?
Bring your existing cover to a free, no-obligation conversation. We can help you understand the terms and the questions worth asking.
Request a free insurance review