Income Protection Insurance

Income protection is an insurance policy that will pay you a gross monthly benefit, in the event you are unable to work due to sickness or injury for longer than your waiting period. Your policy will generally pay you 75% of your income for the lesser period duration of your sickness or accident or the maximum benefit period in your policy.

The benefit can help you cope with the ongoing expenses like rent, mortgage payments, living expenses, children’s school fees and so on.

We have put together 3 step guide to help you find affordable income protection:

When do I need Income Protection?

People typically consider income protection insurance when:

  • Buying a house to help keep atop of mortgage payments when you are unable to work due to sickness or injury.
  • Having an extra dependent (wife/husband, child, parent etc.)
  • Self-employed and being unable to work. Most self-employed individuals don’t have sick leave to fall back on.
  • Switching jobs and no longer receiving the same benefits.
  • Having additional financial commitments, like a property portfolio.

Who should have an income protection insurance policy?

The biggest asset of most people under the age of 55 is their ability to earn an income. Yet, many Australian families are not prepared should they become disabled and are unable to work for an extended period of time. It’s thus of critical importance that you protect your future income earning capacity while you are still young.

If you have a family, are paying a mortgage and have other ongoing obligations debts than you should consider an income protection policy. This protects you in case you do not have sufficient funds during a long period of unemployment due to major illness or accident.

Being off work and unable to make these payments may put you and your family in a poor financial position.

Compare Quotes for Income Protection

  • Cover up to 75% of Your Income
  • Tax Deductible Premiums
  • Flexible Waiting and Benefit Periods
  • Multiple Policy Options Available
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What are the different kinds of policies available in Australia?

You have a choice of mainly three types of policies

number-1Indemnity value

Indemnity Value covers you for a monthly benefit based on your pre-disability income, that is the income you earned before the injury or sickness. If your income has reduced, since you took out your policy, your monthly benefit will be reduced to reflect the reduction in income. The pre-disability income is proved at claim time by proving your income at claim time.

Indemnity value is relatively cheaper compared to agreed value policies because your monthly benefit could be reduced with the reduction in your income.

number-2Agreed value

In agreed value, the monthly benefit or income you will receive at claim time is generally fixed and will not reduce with any future changes to your income.

Agreed value, as the name suggests, is when the benefit is decided at application time itself and not at claim time. During application, your monthly benefit is calculated, based on pre-application income (your income prior to application) and the monthly benefit is an agreed amount. You would only need to provide proof of your income when you first apply for cover.

number-3Guaranteed agreed value

Some insurers have added this term, guaranteed agreed value, in order to validate that your financials are received and on files. This confirms your monthly benefit and thus the name, guaranteed agreed value. However, some insurers still call it Agreed Value.

Income Protection Insurance is generally tax deductible

The good news is income protection policies are generally tax deductible in Australia, because it protects your income and gives you an income while you are off work. The monthly benefit which is paid as a monthly income will incur tax just like your regular pay, because it is treated as an income.

The amount you can claim back will be dependent on your marginal tax rate.

The General rule for claiming a deduction

The ATO states that “for insurance against the loss of your income”, and that you “must include any payment you received under the policy or loss of your income…on your tax return”. Such payments must be declared for the financial year in which it is received.

What does this mean?

The premium you pay on income protection insurance is tax deductible. So, at the end of the year you can claim 100% of this as an expense. If you were to make a claim on income protection insurance you will generally get 75% of your pre-disability income paid to you on a monthly basis, before tax.

However, you cannot claim a deduction for a premium or any part of a premium where the income protection policy is taken out through your superannuation and insurance premiums are deducted from your super fund. It would generally become a deductible expense to the Super fund not to you.

How do I Claim Income Protection on Tax?

You can claim income protection premiums as a tax deduction when you lodge your tax return. Your life insurance company should inform you of what amount is deductible in a premium statement which is sent out in July of each year. If you do not have this document make sure you contact your life insurer before you submit your return.

How much can I claim on income protection premiums?

The amount you can claim as a deduction on your income insurance premium is based on your marginal tax rate – which is set based on your annual assessable income.

Tax deduction example for 2014/15:

If your income protection premium is $100 per month and your annual income is $42,000 per annum, your premium after tax will be $70 per month. Your income fits into a 30% marginal tax rate brackets and you will receive 30% back when you do your tax return.

Claiming and understanding the eligible deductions on a yearly return can be complicated as there are a number of potential deductions depending on your personal circumstances therefore it is important  to seek professional advice by talking to a  tax agent or accountant before submitting your return to the ATO.

Things that affect your premiums

Some things to consider while comparing quotes and getting the most competitive option are:

1. Insurers generally offer a choice of waiting periods this is the time between becoming totally disabled and unable to work and when you start receiving your monthly benefit. Generally, it is anywhere between 14 days, one month, three months, six months to a year or two years. Generally, your premiums tend to be higher when the waiting period is shorter and lesser when waiting period is longer. This is because only more severe sickness or accidents keeps you off work beyond the waiting period.
2. Flexible benefit period options are available to suit your needs and your budget. The benefit period is the time you continue to receive your benefit payments and this generally times range from 2 years and 5 years, to the time you reach the age of 55, 60 or 65. The longer the benefit period, the higher the premium since you get paid more and the insurer covers a greater risk.
3. Your occupation:  The occupational hazards at work affect the cost of your premium. For example a fireman or policeman would pay more premiums compared to someone who works on a grocery checkout or is an office worker. The more risky your job, the higher the premium may be.
4. You can enhance your policy with additional policy options to give yourself greater cover. These generally come with a higher premium.
5. Choose from a number of policy types to suit your needs. The type of policy you choose will generally affect your premiums. If you choose Agreed Value or Guaranteed Value policies, you generally pay around 10% more than if you choose Indemnity Value policy. Depending on which policy suits you: there will be times when one type is much more valuable and you are happy to pay the additional price.
6. Smoking Status – Smokers tend to pay more premiums because of the increased risk to their health. If you have not smoked for last 12 months, you are generally described as a non-smoker for insurance purposes.
7. Your monthly benefit – the higher your monthly benefit is, more expensive your premiums will be.
8. Your age – Premiums tend to increase with age. Young people generally pay lesser premiums, because they are considered at lower health risk.
9. Gender: Females tend to pay higher premiums compared to males. This is generally because independent researches show that women tend to be slightly more susceptible to be absent from work due to health (Source: Bureau of Labour Statistics) whereas men tend to take less days off work and have lower life expectancy than their female counterparts.

What are the minimum hours I need to work per week in order to be eligible for income protection cover?

Generally in order to be eligible for income protection, you must be working for a minimum of 20 hours per week in a Gainful Occupation.

If you do not meet the minimum working requirements, there may be alternatives to income protection for you to consider including ‘Living Expenses Cover’ or ‘General Cover Income Protection’.

These types of cover generally have a different level of eligibility when it comes to claiming and you will need to have suffered a loss of independence and be unable to perform at least 2 out of the 5 Activities of Daily Living.

If I take out an income protection policy for myself, will that cover my family?

Generally income protection only covers the income of the insured person and does not cover the income of a spouse or partner who has to take off work to care for the insured.

However select insurers do offer a number of benefits which can assist the family:

1. Family Member Benefit: If a family member is required to stop working to take care of the insured who is required to be confined to a bed, the family care benefit may pay up to an additional 50% of the monthly amount insured up to a maximum of $3,000 per month for three months.

2. Special Care Benefit: Can pay up to a maximum of $5,000 per month if the insured requires the care of a registered nurse or a house keeper who is not a family member.

3. Nursing Care Benefit: If the insured requires a registered nurse to care for them during the waiting period, 1/30th of the monthly benefit will be paid for each day of nursing care.

4. Child Care Assistance Benefit: If the insured is totally disabled and requires child care assistance, the insurer may cover the monthly cost of child care if the cost is unable to be reimbursed from another source. Any additional child care arrangements must be approved by the insurer.
Generally the insurer will pay up to 5% of the monthly benefit or up to $400.

Please note different insurers may offer different benefits and benefit amounts, therefore you should always consult a PDS and speak to your adviser when deciding over a policy.

Published: March 24, 2017

Ask an Expert?

28 Comments

  • MARTIN |

    Can i take out a policy if i am Australian living and working overseas?

    • Russell SPECIALIST
      Russell |

      Hi Martin

      Thank you for your question.

      If you are living and working overseas and have no intention of returning to Australia you are generally unable to take out any policy. However if it is your intention to return to Australia within the next 5 years, you can generally take out life insurance or trauma (critical illness) insurance. Income protection and TPD insurance will generally be more difficult to get and will be assessed on a case by case basis. It will also depend on where you are working and living and the type of work you are doing.

      Every situation is unique and if you would like more information I urge you to will in the quote form at the top of the page so we can speak with you to get more information about your specific situation.

  • Daniel |

    Hi

    How many hours per week do I need to be working in order to be eligible for an income protection policy? I currently work 25 hours per week as a part time accountant.

    • Russell SPECIALIST
      Russell |

      Hi Daniel

      Thank you for the question. Each insurer has its own view on the minimums required hours per week to be eligible for a policy. This generally ranges from 20 – 30 hours / week therefore it is important you explain your working hours to your adviser before you take out a policy & they can then discuss the minimums for each particular insurer you may be interested in.

  • Jim Rasmusen |

    What is your age limit for income protection, I am 69 yrs old, working full time.

    • Russell SPECIALIST
      Russell |

      Hi, great question.

      At age 69 you are no longer eligible for income protection insurance, however, you DO qualify for Living Expense Cover. This type of insurance is specially designed for individuals over 65, who want a monthly benefit should they become significantly disabled as a result of sickness or an accident.

      For more information please fill in a quote form or contact us on 1300 135 205 for a financial adviser to explain your options.

      Sincerely,

      Russell Cain

  • Irene |

    My doctor has arranged for me an elective surgery in 2-3months time for my carpal tunnel surgery but I have an option not to go ahead with the procedure. Currently I am seeking physio therapy for treatment.

    I am a single parent with a mortgage and family expenses to meet. Am I able to sign up for Income protection in the event I agreed to proceed with the surgery? Will I be on a waiting period to cover the loss of income if I am unable to work whilst on sick leave?

    Thank you.

    • Brett Lenertz SPECIALIST
      Brett Lenertz |

      That is a great question Irene. Generally, the Life Insurance Companies will view this as a pre-existing condition and to comply with your Duty of Disclosure when completing the application / process you would be required to disclose your ‘carpal tunnel’ condition. The Life Insurer would want to know the severity of your condition and therefore they will assess the risk of covering you. The likely outcome would be an exclusion on your Income Protection Policy due to your recent diagnosis, however important for you to either contact us to complete a pre-assessment where we can find out how they will actually view it, or you may want to call around to other insurers yourself.

      Keep in mind, in the event of submitting a claim, the Insurer will obtain your Medicare history to check you fulfilled your duty of disclosure obligation of disclosing your full medical history which will show you have been treated for a ‘Carpal Tunnel’ condition.

      Waiting Periods do apply on most Income Protection Policies Irene, but do keep in mind that Income Protection can potentially cover you for a broad range of other sicknesses, accidents and injuries and if this was of interest to you, please don’t hesitate to contact our office to discuss this further or if you would like us to complete a Pre-Assessment for you as we specialise in assisting people with Pre-Existing Medical conditions.

  • Brian Brookes |

    If I have suffered with depression in the past year. Will this affect my premiums for income protection?

    • Brett Lenertz SPECIALIST
      Brett Lenertz |

      Thanks for your question Brian. When applying for an income protection policy, the insurer will ask question/s regarding mental health and therefore under your ‘Duty of Disclosure’ you would be required to advise the insurer of your depression. There are many options which could potentially occur here with applying for cover depending on the severity of your condition from a medical perspective and also if your depression has required you to take time off work in the past. Firstly, the insurer may decline your application altogether or they may offer you cover but specifically exclude your ability to claim benefits for a mental health event in the future. Secondly, the insurer could offer you cover but apply a loading to your premiums so that they will offer you cover but you will pay more than the rate they would have normally offered you based on normal application conditions. You are welcome to contact our offices on 1300 135 205 and one of our Life Insurance Specialists can take you through a pre-assessment so we can look at the potential cover that may be available to you. Remember, we compare up to 12 x Life Insurance Companies so we can look at various options if you would like to pursue an income protection policy.

  • Paul |

    Do you cover me and how much a year?

    • Brett Lenertz SPECIALIST
      Brett Lenertz |

      Hi Paul, There are many factors that go into setting up the correct type of Income Protection Policy for you. Please also remember that we compare up to 12 x Life Insurance Companies so you may wish to call our offices on 1300 135 205 and we can talk to you about the options available for you.

  • Amber |

    I’m looking for involuntary redundancy income protection. What are my options?

    • Brett Lenertz SPECIALIST
      Brett Lenertz |

      Hi Amber, There are some options available to you with regards to involuntary redundancy being a part of an income protection policy. However, it would be easier to speak to one of our Life Insurance Specialists on 1300 135 205 to gain an understanding around this along with the qualifying factors and any restrictions that may apply so you can best decide if this is suitable for you.

  • Eryn |

    How do I claim on income protection insurance? I have a policy with you guys I’m just not sure how to go about getting it.
    I have recently been unable to work due to a back injury.

    • Brett Lenertz SPECIALIST
      Brett Lenertz |

      Thanks for contacting us Eryn and we often get the question on how to claim on an income protection insurance policy; therefore we have provided this step by step guide to assist you. Secondly we offer a claims assistance service to our existing customers (I have just looked up your details and from the information provided I can see you are not an existing client of ours), and to new customers who would like to use our expertise in navigating the claims process which can be complex, alternatively you can contact your insurer directly and ask them how to claim on your income protection insurance policy as their process may differ slightly.

  • Rob |

    Hi Brett
    I was born with a heart defect that required my first surgery at the age of 16. Therefore I was already behind the 8-ball so to speak. I have spoken with income protection insurers in the past who will not cover me for cardiac related matters due to it being an existing condition. However, when questioned about whether I would like to be covered for other non related illnesses I was advised that I would have to pay a higher premium than normal due to the existing heart condition. My question is, if I do take out insurance to cover non cardiac related issues and surgery was concerned, my cardiac issues would come into play with requiring the input of a cardiologist during treatment. In fact, it would always require cardiologist input for any evasive procedure that may involve general anaesthetic. What is your company’s stance on that? Is this why we are paying a higher premium than others? Or will there be a clause somewhere that reduces income payments because part of the works will require pre-existing specialist input???

    • Brett Lenertz SPECIALIST
      Brett Lenertz |

      Thanks for contacting us Rob and for providing the details in regards to your situation. This is a great question to pose from an Insurance perspective and I thank you for taking the time to contact us as I am sure having Income Protection is very important to you.
      Firstly, as you mentioned the Insurers you have contacted will exclude Heart and Cardiac Related Conditions for you to claim on. This is simply known as an ‘exclusion’. The Insurer may exclude the Heart only or the entire Vascular System. This would have been advised potentially when you applied or were taken through the pre-assessment stage?
      Secondly, when you refer to higher premiums, this is known as a ‘loading’. A percentage is applied to your premium to cover the higher than average risk that a claim will occur.
      To bring all this information together, it is highly unlikely that an exclusion and a loading is applied at the same time on a policy as the Insurer is either excluding that area of the body to be claimed on or they are applying a loading to cover the potential higher risk of a claim. When a loading applies it generally will mean you are covered for all types of claims as you are paying more to have the policy.
      However, it is important to check that the Insurer does not have an over-riding pre-existing medical condition exclusion as may be the case with some providers and you should double check this with the Insurer you are considering applying with. The important consideration is to fully disclose and to provide these types of questions to the Underwriter at the Insurance Company. This process can be done by providing your medical file and as mentioned earlier undertaking a pre-assessment with the Life Insurance Company. You are most welcome to contact us on 1300 135 205 and talk to one of our Life Insurance Specialists who can contact the 11 x Insurance Providers we deal with and therefore can review your situation to find the best solution for your needs.

  • Julian |

    I took out Income Protection and was told I will be covered if I lost my job. I have lost my job and now I get told I’m only covered for sickness and injury!

    • Brett Lenertz SPECIALIST
      Brett Lenertz |

      Thanks for contacting us Julian and I am sorry to hear about your current situation. First of all I have checked if you are a client of ours and I have noticed that you are not but I can provide you with some general information. In the Income Protection Policies that we offer from the 11 x Insurance Providers that we deal with only 2 of them provide a form of involuntary redundancy cover. As you will see on the link there are restrictions involved as you must be a Loan Customer of both of the respective banks mentioned. Please have a look at our Income Protection and Redundancy page for more information. There may be Insurers out there that do offer these policies but in your situation you may have to go back to the Insurance Company if you were given the incorrect information.

  • Linda |

    Hi, we need to take out income protection but we don’t want multiple phone calls as this is an inconvenience and we always end up missing calls, not getting the same person when we call back, get different answers to questions.
    In short we don’t want phone calls, nor want to give a numbers to a large data base.

    • Brett Lenertz SPECIALIST
      Brett Lenertz |

      Hi Linda, totally understand. You are welcome to call our offices on 1300 135 205 and then we will allocate you to an specialist who you can have as your dedicated contact during the whole process. Thank You

  • Ben |

    Can income protection cover me for 24/7 anywhere anytime?

    • Russell SPECIALIST
      Russell |

      Hi Ben

      Yes generally income protection covers you for any sickness or accident that keeps you off work for longer than the waiting period and covers you 24/7 at work or at home. Most policies provide world wide cover as well.

  • Dennis foley |

    Can I claim income protection at 61?

    • Russell SPECIALIST
      Russell |

      Hi Dennis

      If you meet the definition of not being able to work due to a sickness or accident as outlined by your policy there should be no reason why your age of 61 would have any bearing on your ability to make a claim. However in saying that you need to ensure your cover / policy is still current as some policies expire at age 60, 65 or 70. If you need assistance in lodging a claim feel free to reach out to our claims team.

  • Peter |

    I am 62 and drive Uber. I am in good health and am a non smoker and non drinker. I would like Income Protection.

    • Brett Lenertz SPECIALIST
      Brett Lenertz |

      Thanks for making contact Peter. Is a great question you pose with the significant increase in people conducting this sort of work as their primary occupation or in many instances this can be a second occupation for many people. Currently, there is Income Protection available for Uber drivers but to be honest with you not all Insurers will offer cover but importantly with the gradual expansion of Uber, the Insurance Companies may change their view over time and be more accommodating. The best way forward is to make contact with one of our Income Protection Specialists on 1300 135 205 who can conduct a no obligation pre-assessment for you to consider. Thank You

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