Income Protection Insurance Australia

What is income protection?

Income protection is a type of insurance policy that provides financial support if you were to lose your income unexpectedly due to an illness or injury. This type of insurance is designed to cover a portion of your regular income, generally up to 70% of your pre-disablement income, which you can use to cover your monthly expenses

The policy pays out a regular monthly benefit until you can return to work, no longer meet the eligibility criteria or until the end of the policy term, whichever comes first. The amount of income protection cover you will require typically depends on your personal circumstances. Income protection is a valuable type of insurance for those who rely on their income to support themselves and their families, particularly those who are self-employed or who do not have significant savings, annual or sick leave to fall back on in the event of sickness or injury.

Built-in Benefits of income protection in Australia

Typically, there are several common built-in benefits, which may enhance your income protection policy and provide you with extra cover. Although these benefits differ slightly depending on whom you’re insured with, common built-in benefits include:

Optional extras

You can typically enhance your policy with additional options to give yourself greater coverage. These generally come with a higher premium.

However, referring to the relevant PDS for the full list of features and benefits is generally a good idea.

Factors that impact your income protection premiums

How to compare income protection policies in Australia

Generally, the best income protection policy for you meets your unique requirements. To find a policy that may meet your requirements, comparing policies from several different insurers is a good idea. Consider looking at the following:

• Premiums
• Monthly benefits
• Waiting period
• Benefit periods
• Claim eligibility criteria including period of (Own Occupation vs Any Occupation definition, Pre-Disablement Income Definition)
• Other built in-benefits
• Exclusions on the policy

Compare policies from leading insurers

Insurance company	Policy	Monthly premium
	Income Assure	$25.89
	Protection – Income Support Standard	$26.68
	OneCare – Income Secure Protection	$29.98
	Protect – Income Cover	$31.15
	Accelerated Protection – Income Protection Focus – Short BP	$39.91
	Wealth Protection – Income Safeguard	$41.52

Source: Life Insurance Direct Comparison Engine (April 2023; Premium estimates are based on a 2-year benefit period and a 30 days waiting period for anretail (advised) policy for a non-smoking 30-year-old male living in NSW earning $48,000 per year.)

2021 changes to income protection insurance policies in Australia

At the end of 2019, APRA announced that insurers 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 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: agreed value, indemnity value and guaranteed value cover. However, if you were to apply for a new income protection policy today, you could only apply for indemnity value cover.

Older policies generally offered you these options:

Own-occupation changed to Any-occupation disablement definition.

In the recent changes adopted by most insurers, how disablement is defined in your income protection policy has become much 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 could claim the full amount if you can’t perform at least one of your important income-producing activities for your occupation and do not work in any other occupation.

However,generally 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 “suitable work”. The definition of “suitable work” changes depending on how long you receive your monthly benefit. For the first 24 months of being on claim, disability is defined as being unable to perform all the important income-producing duties of suitable work in your regular occupation. After this period, your insurer will generally change the definition of suitable work. At this point, suitable work is defined as your ability to return to work in any occupation. Select insurers offer an up to 5 year Own occupation definition policy.

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, select insurers may assess your income based on your average earnings over two years.

75% monthly benefits reduced to 70%

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 allow you to secure up to 75% of your monthly income, with some insurers offering up to 80% coverage.

However, policies available after 2021 typically only cover up to 70% of your income. Some insurers may offer you the option to cover 90% of your income for a maximum of 6 months. Others also reduce the monthly benefit to 60% or lower after two years on a claim.