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When you have a family, are paying off a mortgage, or have older parents who rely on you, your income is often one of your most important assets. Should you become ill or are injured and unable to work for some time, income protection insurance in Australia could help you continue to provide financial support to the ones you love most while you recover.

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Income Protection Insurance Australia

When you have a family, are paying off a mortgage, or have older parents who rely on you, your income is often one of your most important assets. Should you become ill or are injured and unable to work for some time, income protection insurance in Australia could help you continue to provide financial support to the ones you love most while you recover

Benefits of income protection

What is income protection?

Income protection insurance is generally a type of life insurance policy. Suppose a medical professional declares that you are unable to work for longer than the waiting period. In that case, this type of policy typically pays a monthly benefit of up to 70% of your regular before-tax income when you can’t work due to illness or injury. Generally, you’ll be able to use this benefit to continue managing your financial obligations.

Who needs income protection insurance?

Income insurance policies are potentially beneficial for a wide range of people. Anyone currently paying off a mortgage has ongoing debts, or financial dependents may want to consider looking for an option that meets their specific requirements.

You may want to think about getting income cover if one or more of the following apply to you:

  • You have a mortgage: Insurance on your income could help you keep up with home loan payments.
  • You have financial dependents: If you’re married, have children or parents who rely on you financially, a policy of this type will ensure that they can maintain their current lifestyle.
  • You’re self-employed: You typically won’t have any sick leave to fall back on if you own your own business. Income cover for the self-employed keeps you protected so that you can recover without taking a major financial hit.
  • Other financial obligations: If you have additional financial commitments that rely on your income, like a property portfolio, cover like this could help you maintain these even if you can’t work.

Recent changes to income protection insurance policies in Australia

At the end of 2019, APRA announced that insurer’s needed to make several changes to their policies to ensure the viability of income protection in the future. Changes started being implemented in March 2020 when insurers took Agreed Value policies off of the market. This was followed up by changes to monthly benefits, new disablement definitions being implemented and alterations to how your income at risk is assessed.

Types of policies available before the March 2020 reforms

Before the first set of changes mandated by APRA, you would generally have the option to choose between one of three different policy types, namely agreed value, indemnity value and guaranteed value cover. However, if you were to apply for a new income protection policy today, you would only be able to apply for indemnity value cover.

Older policies generally offered you these options:

  • Indemnity Value income protection: Indemnity value policies are usually cheaper than Agreed value policies, but it does not guarantee your monthly benefit. With an Indemnity policy, your monthly benefit will be the lesser of 75% of your pre-disablement income or your insured monthly benefit. Therefore, if your income reduces after taking out the policy, you may receive a lesser monthly benefit.
  • Agreed Value Income Protection: Premiums are generally more expensive compared to Indemnity policies. However, an Agreed Value policy might suit people with fluctuating incomes because your monthly benefit is determined when you apply for your policy, essentially locking in your monthly benefit. The insurer will calculate your benefit using the financial records you provide at application time instead of claim time.
  • Guaranteed agreed value: Select insurers will offer this income protection policy type, which converts your agreed value policy to guaranteed agreed value upon you presenting proof of income. To receive such a policy, the insurer will confirm your monthly benefit based on the financial statements you provided during application time.

“Own-occupation” changed to “Any-occupation” disablement definition

Pre 1 October Changes

In the most recent changes adopted by most insurers, how disablement is defined in your income protection policy has become a lot more stringent. Legacy policies typically have an “Own-occupation” definition

Typically, this means that if you are unable to work for longer than the waiting period, following the recommendation of a medical professional, because you became ill or were injured. Then, you would be able to claim the full amount if you can’t perform at least one of your important income-producing activities for your occupation and not work in any other occupation.

Post 1 October Changes

However, if you were to buy a policy following the 1 October 2021 income protection changes, then the disablement definitions on your policy will change to “Any-occupation”. The definition of “Any-occupation” changes depending on how long you receive your monthly benefit.

For the first 24 months of being on claim, disability is defined as you being unable to perform the important income-producing duties in your “Own-occupation”. After this period, your insurer will generally change the definition of disability. At this point, it’s defined as your ability to return to work in any occupation.

Alterations to the calculation of your pre-claims earnings

Previously, select policies allowed your pre claims earnings to be calculated according to the best 12 consecutive months of earnings over 2 or 3 years. This allowed individuals who earn a fluctuating income to choose to have their income assessed based on the 12 consecutive months of their highest earnings.

New policies are typically calculated according to the income you earned in the 12 months before you make a claim. If you earn a variable income, then select insurer’s may choose to assess your income based on your average earnings over two years.

75% monthly benefits reduced to 70%

Pre 1 October Changes

A significant change implemented after the October 2021 changes is the reduction of monthly benefits that you’ll be able to claim. Older policies typically give you the option to secure up to 75% of your monthly income, with some insurers offering up to 80% coverage

Post 1 October Changes

However, policies available on the market after 2021 typically only cover up to 70% of your income. It’s important to note that some insurers may offer you the option to cover 90% of your income for a maximum of 6 months. Others are also reducing the monthly benefit to 60% or lower after two years of being on a claim.

Features and benefits of income protection in Australia

The primary function of an income protection policy is to provide a monthly benefit if you should get sick or are involved in an accident that prevents you from working. However, most policies of this kind generally have several common built-in benefits, which typically enhance your policy and provide you with extra cover.

Although these benefits differ slightly depending on who you’re insured with, common built-in benefits include:

Optional extras

You typically have the option to enhance your policy with additional policy options to give yourself greater cover. These generally come with a higher premium.

However, it’s generally a good idea to refer to the relevant PDS for the full list of features and benefits available to you.

We make it easy for you to compare policies online with our powerful comparison engine.

Buy with confidence today for peace of mind tomorrow.

How much does income protection insurance cost?

Typically, your income protection premium is calculated according to several different aspects. These include your age, gender, occupation, income waiting period, and benefit periods and other questions you may be asked during the application process.

Factors that affect your premiums

  1. Your monthly benefit: Generally, the higher your monthly benefit is, the more expensive your premiums are. Currently, insurers offer you the option to cover up to 70% of your income.
  2. Your choice of waiting period: Insurers generally offer you a selection of waiting periods. This is the time between becoming disabled and unable to work and when you start accruing your monthly benefit. Usually, it is anywhere between one month, three months, six months, a year or two years. Typically, your premiums tend to be higher when the waiting period is shorter because a claim can potentially be paid for less severe illnesses or accidents.
  3. Choice of benefit period: The benefit period is the maximum amount of time you continue to receive your benefit payments. It generally ranges from 2 years and 5 years or up your age 55, 65 or 70depending on the insurer. The longer your benefit period, the higher your premium will generally be since you potentially get paid for a longer period, and the insurer covers a higher risk.
  4. Your occupation: The occupational hazards at work affect the cost of your premium. For example, a firefighter or policeman would pay more premiums than someone who works on a grocery checkout or in an office.
  5. Smoking Status: Smokers tend to pay more for their premiums because of the increased risk to their health. If you have not smoked for the last 12 months, you are generally described as a non-smoker.
  6. Your age: Premiums tend to increase with age. Young people generally pay less because their health risks are lower.
  7. Gender: Generally, women tend to pay higher income protection premiums than men because women usually make more income protection claims.
  8. Built-in benefits: Some policies might be more expensive because they include a broader range of built-in benefits. Others might be cheaper because they only provide a few basic benefits.

Average monthly premiums

OccupationMaleFemale
Account clerk$21.19$31.62
Qualified Carpenter$55.32$62.91
Graphic designer$28.52$38.77
Teacher$22.90$34.07
Construction worker$55.78$62.91
Court office registrar$22.90$34.07

Source: Lifeinsurancedirect.com.au Comparison Engine (November 2021; Premium estimates are based on a 2-year benefit period of $3,000 a month and 30 days waiting period for an Agreed retail (advised) policy for a non-smoking 30-year-old individual living in Victoria and earning $48,000 per year.)

How to compare income protection policies in Australia

Generally, the best income protection policy for you is one that meets your unique requirements. To find a policy that may meet your requirements, it’s generally a good idea to compare policies from several different insurers. You may want to consider looking at the premiums, monthly benefits, waiting and benefit periods, as well as the benefits that may be included in your policy before deciding.

Compare policies from leading insurers

Insurance CompanyPolicyMonthly Premium
TALAccelerated Protection – Income Protection Plan Focus (Standard)$39.91
MLCInsurance – Income Protection Assure (Standard)$40.80
ClearviewLife Solutions – Income Protection Cover Indemnity 60 (Standard)$42.55
NeosProtection – Income Support (Standard)$44.11
AIAPriority Protection – Income Protection Core (Standard)$49.77
ZurichWealth Protection – Income Safeguard$58.00
OnePathOneCare – Income Secure (Standard)$61.07
BTProtection Plan – Income Protection Assured (Standard)$63.81
MetLifeProtect – Income Cover (Standard)$74.61

Source: Lifeinsurancedirect.com.au Comparison Engine (November 2021; Premium estimates are based on a 2-year benefit period of $3,000 a month and 30 days waiting period for an Agreed retail (advised) policy for a non-smoking 30-year-old individual living in Victoria and earning $48,000 per year.)

Is income protection insurance tax deductible?

Yes, income protection insurance is generally tax-deductible in Australia when held in your name, as it protects your salary and gives you an income. At the same time, you are unable to work because of an illness or injury. The amount you can claim back will be dependent on your marginal tax rate. However, you’ll have to pay tax on your monthly benefit because it is treated as an income replacement.

Frequently asked questions and answers.

  • What does income protection cover?

    When you apply for an income protection policy, you can generally expect to receive a benefit paid to you to help cover up to 70% of the income you earned before going on claim. This can be used to pay your debts, cover the cost of living or your medical bills while you take the time to recover so that you can return to work and earn your regular income.
  • What is the difference between an income protection waiting period and a benefit period?

    Generally, your waiting period refers to the amount of time between becoming unable to work because of a sickness or accident and when you start accruing your monthly benefit. On the other hand, your benefit period is the maximum amount of time your benefit on your policy may be paid to you.
  • How long can you be on income protection?

    Typically, this depends on your benefit period. A benefit period is the maximum length of time you would like your monthly benefit paid if you do not work due to a sickness or accident. Depending on the insurer, you’ll generally have the choice of 2 years, 5 years, or up to your age 65 or 70. The longer your benefit period, the more expensive your premium will generally be.
  • Is it worth getting income protection?

    Whether income cover is worth it typically depends on your requirements. Your greatest asset is often your ability to earn an income. Ensuring that you have adequate cover in place should you no longer work is typically important if you would like to maintain your current lifestyle while you recover.
  • Does income protection cover pre-existing conditions?

    Yes, it can, however, not always. Therefore important that you disclose all pre-existing medical conditions to the insurer at application time for them to assess and confirm if they will be able to cover the condition or not. Each insurer typically assesses your situation differently, so you may want to consider several insurers
  • What is needlestick cover?

    Needlestick Cover is a unique benefit on income protection policies designed to protect those in the medical profession from needle stick injuries and can potentially include protection against splash injuries sustained during their normal working duties when meeting the Product Disclosure Statement (PDS) definition.

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