Your Guide to Protecting Your Income

Your guide to choosing an income protection policy that meets your requirements. Take your stage of life, occupation and budget into consideration when selecting your income protection policy type, monthly benefit, benefit period and waiting period.

Published March 3, 2022

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If you’re like most working Australians, your ability to work and earn an income may be your most valuable asset. Are you taking the appropriate steps to protect this asset? Do you have enough insurance coverage, such as income protection, in place to provide you and your family with financial security should you suffer a sickness or accident and not be able to work and earn an income.

If your family’s financial future is important to you and you’d like to find out more about the benefits of income protection, then this guide is for you.

What is income protection insurance?

This type of insurance generally provides you with a monthly income should you suffer from an illness or injury that keeps you off work for longer than the policy’s waiting period. Your policy will then pay you a monthly benefit for the duration of your income protection benefit period.

What does income protection cover and how long will it last me?

Generally, this type of insurance covers you for up to 70% of your salary and assists you in paying for any ongoing expenses you may have. You could use it to cover costs like rent and mortgage payments, school fees and groceries. 

Most income protection policies cover you up to a certain age or the duration of your benefit period which typically ranges between 2 and 5 years. If you have a 2 or 5 year benefit period and your policy has paid out your maximum benefit, it will stop. It’s best to thoroughly read and understand the relevant insurer’s PDS before you commit to a decision.

What is your income protection benefit period?

A benefit period is typically the maximum length of time in which you’ll be able to claim your monthly benefit. Your benefit period will vary according to your chosen insurer, and is set by you during the application process. Benefit periods are usually between 2 to 5 years or until your age of 65. Generally, this is up to age 65 or 70 while other insurers offer periods up to age 50 or 55.

When will the monthly income be paid to me?

This will depend on certain aspects of your policy, including:

How does the waiting period work?

Income protection waiting periods refer to the length of time you are unable to work before your benefit period begins and depends on what was agreed upon when applying for it. Waiting periods vary but can range anywhere from 30 days up 2 years – after which monthly payments will be paid in arrears unless otherwise specified by an individual’s policy terms or contract situation. 

Do I really need to protect my income with an income protection policy?

It depends. If you feel your ability to work and generate an income is worth insuring, then yes.

People typically consider income insurance when:

Such a protection policy can allow you to provide for yourself and your family. Continue to pay your mortgage, credit cards and bills, while keeping your investment strategies in place.

How many hours do I need to be working to be eligible for a policy?

Each insurer has their own view on the minimum amount of hours per week you’ll need to be working when you apply for a policy. This can range from 20 to 30 hours per week. If the average amount of hours your work is in this range or below, it is important you talk to a specialist before selecting a policy.

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 do I need and what will it cost me?

When purchasing income protection there are a few things you need to consider. It might also help if you first determine how much money you need to cover your standard monthly expenses. Our income protection calculator will assist you in determining how much cover you’ll need.

Shop around and compare cover and prices – they differ greatly. Your premiums will be dependent on a number of things, including your current salary and the benefit period you want to be covered for.

Other determining factors include your:

On the bright side, premiums for protection insurance are generally tax deductible.

Choosing an Income Protection Policy

There is more than one kind of policy. You have a number of options to choose from, but it’s important that you always consult the insurer’s product disclosure statement before commencing. The right policy for you depends on your requirements and specific circumstances.

Before the most recent income protection changes from APRA, you generally had the option to choose between these three main options:

  1. Indemnity value covers you for a monthly benefit based on your earnings before the accident and illness.
  2. Agreed value generally pays a fixed sum and will not reduce with any changes to your income, however you need to provide financial evidence to support this fixed monthly benefit during application stage.
  3. Guaranteed agreed value is a term used by select insurers to validate your financials are received and on file, confirming your monthly benefit.

For more ways to tailor your policy, read our detailed policy option guide.

Whatever policy you choose, there are some key questions to ask:

Things You Must Tell Your Insurer

You must correctly and accurately answer all the questions the insurer requires of you, to at the time of your application, including full details of your:

  • Occupation
  • Past times
  • Family medical history
  • Income status
  • Medical history

If you leave anything out (non-disclosure) and then later try to make a claim, your insurer might refuse your payout.

You must also tell your insurer of circumstances that might have changed between the time you applied and when the cover starts, for example becoming pregnant. Also, tell your insurer if you partake in dangerous hobbies or have a lifestyle that includes heavy drinking and/or taking drugs.

If you already have a pre-existing medical condition, look for an insurer that will be prepared to cover it, although you might have to pay more or have an exclusion attached to it.

Provide the insurer with the most complete information you can. This allows them to accurately understand your particular circumstances.

How to Buy Income Protection

You can buy a protection policy from a life insurance broker or directly from the insurance company. Remember, when taking out any insurance policy, you should carefully read the terms and conditions.

Not all insurance companies offer equal.

Look for helpful built in benefits that might be included in your policy. It’s also important that you regularly review your total insurance coverage package as your circumstances change. Ask an experienced insurance advisor about the insurance products they have which best meet your current needs.

You can also save on your protection policy by:

As a working professional, your most important assets is you. The ever-present possibility of sickness or injury is without a doubt your biggest risk. Protect yourself and your family’s needs, while you’re unable to work and earn a salary. Contact an insurance specialist and start comparing quotes today.

Frequently asked questions and answers

  • When does the income protection benefit period start?

    Usually, your benefit period will kick in the day after your waiting period has come to an end. Once you are diagnosed with an illness or ar in an accident your waiting period typically starts. Once the waiting period is over, you’ll generally start receiving benefits on your policy.
  • Does it cover redundancy?

    The policies we compare at Life Insurance Direct do not usually cover redundancy. However, it’s still a good idea to compare the options available to you. This way you ensure that you’re getting the right policy for your requirements.
  • What is the maximum income protection benefit?

    Depending on who you’re insured with, you can get up to 70% of your pre-disablement income paid back to you as a monthly benefit. Most insurers will look at the income you earned in the 12 months before you were injured or became sick to calculate the monthly benefit you qualify for.
  • How long can you be on income protection?

    Generally, you’ll be able to continue claiming your income protection for a period between two and five years or up to a specific age. Typically, income protection policies with longer benefit periods are more expensive than policies with shorter benefit periods.
  • Can you claim your income protection insurance premiums on your taxes?

    Yes, if you hold an income protection policy in your name, the premiums will generally be tax deductible. If you have a combined policy which covers you for income protection and life insurance, you’ll only be able to claim the portion of your premium which your pay for income cover on your tax return.

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