Our Guide to Protecting Your Income

Take a moment and ask yourself these 2 important questions:

1. How much money have I earned up until now?

If you’re like me and have been working non-stop since the day you completed your studies, you might have an impressive 16+ years of income earning under your belt. While I can’t recall each year’s income I’d venture a guess that my total income over these 16+ years to be about $960,000 gross.

2. What proportion was made from employment vs passive income?

I have made many investments throughout the years in the hope of generating a substantial passive income. However, to date, my passive income from investments has yielded only about $25,000 of the above sum.

The above two questions aims to demonstrate the reality many working Australians face – that your biggest asset is your ability to work and earn an income.

Are you taking the appropriate steps to protect this asset? Do you have appropriate 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.

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How Income Protection Insurance can Help You

This type of insurance provides you with a monthly income should you fall victim to a sickness or accident that keeps you off work for a period longer than the waiting period of the policy. For example, if you were diagnosed with prostate cancer or you broke your leg and can’t work due to do this illness or accident.
Generally covers you for up to 75% of your salary and assists you in paying for those ongoing expenses, like rent and mortgage payments, school fees and groceries. Most income protection policies expire at age 65, as long as you continue to pay your premiums.

However, this is not always the case. For example, 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 decisions.

Usually, your benefit period will kick in the day after your waiting period has come to an end.
Your benefit period will vary according to your chosen insurer, and is set by you during the application process, usually at 2 to 5 years or until your age of 65. In some cases the benefit might be payable until your 70th birthday.
This will depend on certain aspects of your policy, including:
  • Your waiting period – Generally no income is due to you during this period of time.
  • Your insurers payment cycle – Assuming you have met the eligibility to claim on the Policy, your monthly income (benefit) is generally paid a month in arears. Therefore, if you had, for example a 30 day waiting period, the first payment you would receive will be on day 60.
The waiting period is the amount of time you need to be off work before the benefit period starts.

The waiting period is generally selected by you at application time and will impact your premiums and ability to claim.

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

  • Buying a house to help keep atop of mortgage payments
  • 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

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.

The policies we compare at Life Insurance Direct do not usually cover redundancy, however, select insurers do offer some options when it comes to unemployment. Click here for more information.

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.
Super funds can offer a type of income insurance policy which is generally called Salary Continuance insurance, however there are a number of limitations in having your insurance within a superannuation environment:
  • More difficult to access benefits
  • The eligibility criteria of the polices can be more stern

People generally have a misconception regarding what exactly workers comp covers and its payment period. The primary limitation is that it will only pay if the injury happens at work, usually not covering you for sicknesses or accidents that occur at home. The maximum pay-outs also vary from state to state.

Centrelink, the sickness allowance benefit provides eligible Australian residents a $527 per fortnight benefit should you have a sickness or accident and satisfy all their requirements, including:

  • Income Test
  • Asset Test
  • Residency Requirements, and
  • Waiting Periods, which depends on your circumstances

The benefits provided by centrelink are extremely low and most working Australians would find it very difficult to meet all the eligibility criteria.

When purchasing an income protection there are a few things you need to consider. It might also help if you first determined 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 benefit period you want to be covered for. Other determining factors include your:

  • Age
  • Gender
  • Smoking and drinking status
  • Health and pre-existing medical conditions
  • Your occupation, sport and pastime activities

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

Try to find a policy with a guaranteed future insurability option. This can be a built in feature that comes standard with a select number of products. It allows you to increase your cover without additional medical information, within a certain period of time, when you’ve gotten salary increase and want to cover said increase.
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.

There are generally 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:

What’s covered and what’s not covered
Are there any exclusions or circumstances where the policy won’t pay out.
How much can I claim and for how long.
How long will I have to wait for my first payment.
Is the monthly benefit a fixed (agreed) sum, or based on my earnings prior to the sickness or accident, and if so does it look at:
  • The previous 12 months or
  • The best 12 consecutive months over the last 2 years or
  • The best 12 consecutive months over the last 3 years
How does the insurer asses my eligibility for a claim

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:

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:

  • Increasing your waiting period
  • Decrease your benefit period
  • Remove inflation protection
  • Only cover the portion of the income you require
  • Shop around and compare quotes
  • Quit smoking
  • Take out cover as early as possible
  • Remove unnecessary options


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.

Published: June 2, 2016

Ask an Expert?


  • Jane Enter |

    Which is the best income protection for me?

      Brett Lenertz |

      Hi Jane, thanks for contacting us. There are many options available with Income Protection and likewise choice of Insurers with this type of policy. Please contact us on 1300 135 205 and one of our specialists can answer your questions and discuss these options with you.

  • Peta |

    I am 35 and work in an office – can you please give me an example of a reason someone like me would need income protection? Are there any stats on the subject?

      Brett Lenertz |

      Thanks for your great question Peta. There are many reasons someone would consider Income Protection and as you say you work in an office so therefore you might say you have a much reduced risk of an accident in your occupation compared to a ‘physical occupation that is outdoors’ for example. But importantly, it is wise to remember that a ‘sickness’ can affect anyone and there could be many illnesses that could prevent people working for extended periods of time. For example in 2013, OnePath Life’s Income Protection Claims for Females were 18% due to Cancer and also 18% for Heart Conditions which is quite significant. Likewise, Income Protection will generally cover someone 24 hours a day / 7 days per week so you are covered on weekends or while travelling for example and accidents could occur in those situations.

  • Catharina |

    I have a pre-existing illness but am still working in a corporate environment, please advise on an Insurer that will provide Income Protection in this situation. Willing to wait 90 days and would prefer up to age 65. Thanks

      Brett Lenertz |

      Hi Catharina and thanks for making contact. As we work with 11 x Life Insurers in the Australian Market it is just a matter of one of our Income Protection Specialists assessing your pre-existing condition with these Insurers that we work with. They will look at the severity of your condition, current treatment and long term prognosis as to whether a policy would be accepted at standard rates, with a loading (higher premium) or an exclusion. There is no cost to you for one of our Specialists to conduct a pre-assessment and provide some outcomes and options for you. Feel free to contact us on 1300 135 205 and we can help you in this regard.

  • Mariana Payne+kok |


    I only need Personal Injury Insurance to cover myself as working as a Counsellor/Psychologist/Social Worker with the Department of Veteran Affairs. I am Contracted for providing this service as a Sole Trader through my business.

      Brett Lenertz |

      Thanks for contacting us Mariana. One option we can provide you with information on is ‘Accident Only‘ Income Protection. As the name suggests it will only cover you for Accidents and not sickness or illness and therefore the premiums are generally lower than full Income Protection policies. If this policy would meet your requirements you are welcome to contact one of our Income Protection Specialists on 1300 135 205 who can explain the policy in more detail and provide you with a no obligation quotation.

  • Andrew H |

    I want accident only income protection cover to top up my current Income protection policy, providing more cover should I have an accident.

    Which accident only Income protection policy won’t reduce how much I receive because I have another income protection insurance policy, even though it is of a lower amount.

      Anneke |

      Hi Andrew.
      Personal accident insurance policies are generally more cost-effective because they only cover accidents, and usually, do not require to be medically underwritten.

      However, income protection policies have built-in offset clauses, meaning you can generally only insure up to 75% of your income, this counts for accident only income protection policies too. The reason for this is to prevent people from taking out multiple policies and trying to claim 100%. As you can imagine, such a person would not be motivated to return to work.

      Although, you can have two income protection policies with complimentary waiting and benefit periods. For example, your accident only IP policy could have a 30 day waiting period and a two year benefit period, while your other income protection policy has a two-year waiting period, but pays a monthly benefit up to your age 65.