How To Reduce The Cost of Your Income Protection

Income protection pays you a monthly benefit of up to 75% of your regular income when you can’t work because of a sickness or accident. You can use this monthly benefit to help you cope with ongoing expenses, so you can focus on recovering and getting back to work.

If you want to protect your income, but feel such a policy is too expensive, use the list below to reduce your income protection premiums.

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Factors influencing your income protection premium

Factors
Description
Waiting periodThe amount of time between becoming unable to work because of a sickness or accident and when you start accruing your monthly benefit. Learn more.
Benefit periodThe maximum length of time you would like your monthly benefit paid to you should you no longer be able to work. Learn more.
Monthly benefitThe level of cover you applied for. You can insure yourself for up to 75% per month of your personal exertion income after business expenses. Learn more.
Health and smoking statusSmokers can pay double or more for the same policy than a non-smoker because of their increased risk of developing claimable medical conditions. Learn more.
Age and genderGenerally, the older you are when taking out a policy, the higher your risk of claiming and thus, the more expensive your premium. Women generally pay more for an income protection policy due to stats showing females making more income protection claims. Learn more.
Additional policy optionsFor example, the specific injury benefit option. Generally, the more benefits added to a policy, the higher your premium. Learn more.
Medical historyDepending on your pre-existing medical conditions, for example, cancer or diabetes, you might have to pay more for a policy to cover your risk. Learn more.
Policy typeAgreed value or Indemnity value. • Agreed value: Your monthly benefit is calculated on your income before you apply for a policy and is locked-in (after financial evidence is provided). • Indemnity value: Financial evidence that proves your income is required at claim time. Learn more.
Chosen premium structureStepped, level or hybrid. Learn more.
Your occupationIf you’re employed in a dangerous trade, for example as a firefighter, then an insurer may increase the cost of your premium.
State you reside inDifferent states and territories have different government taxes and levies. For example, you may have to pay a stamp duty charge on your policy.

13 Ways to make income protection more affordable

Use the below list to help you reduce your premiums and get income protection that covers you when unable to work for longer than your waiting periods because of illnesses or injuries.

Take note: The cost of your income protection policy should not be the only factor you consider when choosing insurance. Read the relevant Product Disclosure Statement (PDS) to find out what features and benefits offered might meet your requirements.

1 Increase your waiting period

The waiting period is the amount of time you need to be off work, following the advice of a medical professional, before your monthly benefit begins.

The shorter your waiting period, the higher your premium will generally be. By increasing the waiting period, you could potentially save over 38% on your premiums. However, you must be mindful of the impact a shorter waiting period can have on your policy.

Things to consider when choosing your waiting period include:

  • How long you can afford to go without receiving an income,
  • Any savings you have
  • Leave entitlements available, including sick, annual and long service leave
  • If you are self-employed

30 day waiting period vs 90 Day waiting Period

Annual SalaryMonthly BenefitMonthly Premium for a 30 Day Waiting PeriodMonthly Premium for a 90 Day Waiting PeriodSaving
$150,000$9,375.00$107.83$65.8038.98%
$100,000$6,250.00$73.48$45.0238.73%
$85,000$5,313.00$62.46$38.2638.74%
$60,000$3,750.00$45.53$27.7039.16%

The above table was calculated using the Life Insurance Direct App, based on a 40-year-old, non-smoking, male Accountant, living in NSW (September 2019). A stepped premium style Indemnity income protection policy, with a benefit period up to age 65.

Please note, while premiums are based on actuals, they are examples only and may not be indicative of actual premium availability.

2 Decrease your benefit period

The benefit period refers to how long you will receive your monthly benefit for should you suffer a sickness or injury and be unable to work for longer than your waiting period.

The longer your benefit period is, the higher your premiums will generally be. A shorter benefit period also means the maximum benefit you can receive is reduced. By reducing your benefit period, you can potentially save over 25%.

Income Protection Benefit Period: 2-years vs 5-years vs to age 65 or 70

Annual SalaryMonthly BenefitMonthly Premium for a 2 year Benefit PeriodMonthly Premium for a 5 year Benefit PeriodMonthly Premium for a "To Age 65" Benefit PeriodMonthly Premium for a "To Age 70" Benefit Period
$150,000$9,375.00$62.39$77.23$107.83$126.44
$100,000$6,250.00$42.69$52.84$73.48$86.17
$85,000$5,313.00$36.28$44.91$62.46$73.23
$60,000$3,750.00$26.27$32.52$45.53$53.39

The above table was calculated using the Life Insurance Direct App, based on a 40-year-old, non-smoking, male Accountant, living in NSW (September 2019). A stepped premium style Indemnity income protection policy, with a waiting period of 30 days.

Please note, while premiums are based on actuals, they are examples only and may not be indicative of actual premium availability.

3 Remove CPI Increases

Inflation Protection or Benefit Indexation is generally automatically applied to your policy to protect it from increases in inflation.

When applied, your insured amount will increase each year on your policy renewal date by either a set percentage or the rise in the Consumer Price Index (CPI).

You can opt-out, once or permanently, if you wish. Doing so will help you to save on your premiums. However, your policy will no longer keep up with inflation.

4 Only cover what you need

When taking out income protection, you should make sure you are covered for your specific requirements. Having too little or too much cover may not be adequate.

While income protection generally covers up to 75% of your salary, you can reduce this percentage if you do not need as much cover and thus lower your premiums.

Choosing the percentage of your income you want covered

Annual SalaryPercentage of Salary CoveredMonthly BenefitMonthly Premium
$100,00075%$4,688.00$32.02
$100,00070%$4,375.00$29.88
$100,00060%$3,750.00$26.27

The above table was calculated using the Life Insurance Direct App, based on a 30-year-old, non-smoking, male Accountant, living in NSW (August 2018). Indemnity income protection policy, with a 30-day waiting period and 2-year benefit period.

Please note, while premiums are based on actuals, they are examples only and may not be indicative of actual premium availability.

5 Compare Quotes

It’s essential to compare quotes from a range of insurers. We compare some of the most significant life insurance brands in Australia and can provide you with a detailed report for each of those brands.

Compare income protection quotes

Insurance BrandMonthly BenefitMonthly Premium
MLC Insurance with On Track – Income Protection$6,250.00$42.69
Zurich Active – LiveWell – Income Protector$6,250.00$43.71
AIA Priority Protection - Income Protection$6,250.00$49.86
ClearView Life Solutions - Income Protection$6,250.00$53.28
OnePath OneCare – Income Secure Essentials$6,250.00$56.88

The above table was calculated using the Life Insurance Direct App, based on a 40-year-old, non-smoking, male Accountant, with a $100,000 annual income, living in NSW (September 2019). A stepped premium style Indemnity income protection policy, with a 30-day waiting period and 2-year benefit period.

Please note, while premiums are based on actuals, they are examples only and may not be indicative of actual premium availability.

6 Quit Smoking

Smokers typically pay more for insurance compared non-smokers, due to the increased health risks associated with smoking.

If you are a smoker, you may be able to save on your premiums by quitting smoking. In some cases, if you have stopped smoking for 12 months, including not using quitting aids such as nicotine patches or gums, you may be able to get your premiums reduced.

Compare smoker vs non-smoker income protection rates

Insurance BrandMonthly BenefitMonthly Premium for SmokersMonthly Premium for Non-smokersSavings
MLC Insurance with On Track – Income Protection$6,250.00$51.35$42.6916.86%
Zurich Active – LiveWell – Income Protector$6,250.00$56.82$43.7123.07%
AIA Priority Protection - Income Protection$6,250.00$62.35$49.8620.03%
ClearView Life Solutions - Income Protection$6,250.00$66.60$53.2820%
OnePath OneCare – Income Secure Essentials$6,250.00$71.47$56.8820.41%

The above table was calculated using the Life Insurance Direct App, based on a 30-year-old male  Accountant, living in NSW (August 2018). Indemnity income protection policy, with a 30-day waiting period and 2-year benefit period.

Please note, while premiums are based on actuals, they are examples only and may not be indicative of actual premium availability.

7 Take cover out early

Generally, the younger you are when you take out protection, the cheaper your premiums will be. You are also less likely to have serious medical conditions when you are younger, which can impact the cost of cover.

Income protection premiums according to age

AgeMonthly BenefitMonthly Premium
25$6,250$32.84
30$6,250$33.14
35$6,250$35.82
40$6,250$42.69
45$6,250$56.54
50$6,250$90.75

The above table was calculated using the Life Insurance Direct App, based on a non-smoking, male Accountant, with a $100,000 annual income, living in NSW (September 2019). A stepped premium style Indemnity income protection policy, with a 30-day waiting period and 2-year benefit period.

Please note, while premiums are based on actuals, they are examples only and may not be indicative of actual premium availability.

8 Remove unnecessary options

Income Protection comes with several options which are designed to customise and enhance your policy. However, these do cost extra, and it is crucial to balance affordability with enhanced cover.

The Plus options below include the Specified Injury Benefit and Claims Escalation.

Plus vs Standard income protection

Insurance BrandMonthly BenefitMonthly Premium with Options (Plus)Monthly premium without Options (Basic)Savings
MLC Insurance with On Track – Income Protection$6,250$49.69$42.6914.08%
Zurich Active – LiveWell – Income Protector$6,250$50.95$43.7114.21%
AIA Priority Protection - Income Protection$6,250$54.52$49.868.55%
ClearView Life Solutions - Income Protection$6,250$60.84$53.2812.42%
OnePath OneCare – Income Secure Essentials$6,250$67.23$56.8815.39%

The above table was calculated using the Life Insurance Direct App, based on a 40-year-old, non-smoking, male Accountant, with a $100,000 annual income, living in NSW (September 2019). A stepped premium style Indemnity income protection policy, with a 30-day waiting period and 2-year benefit period.

Please note, while premiums are based on actuals, they are examples only and may not be indicative of actual premium availability.

9 Make use of Health and Wellness incentives

Many life insurance companies offer discounts when you maintain a healthy lifestyle. While most of these discounts apply to Life, TPD and Trauma insurance policies, some insurers provide premium reductions on their income protection policies too.

10 Claim a tax deduction

When you purchase income protection in your own name (you are the policy owner and pay for the policy), premiums are generally tax-deductible. The amount you can claim will depend on your income and the tax you paid in the relevant tax year.

Tax Rates for 2018/19

Taxable Income RangeTax RateTax on this income
0 – $18,2000%Nil
$18,201 - $37,00019%19c for each $1 over $18,200
$37,001 - $90,00032.5%$3,572 plus 32.5c for each $1 over $37,000
$90,001 - $180,00137%$20,797 plus 37c for each $1 over $90,000
$180,001 and over45%$54,097 plus 45c for each $1 over $180,000

Source: Australian Taxation Office (June 2019)

11 Indemnity income protection is cheaper

Compared to Agreed value income protection policies, an Indemnity policy can be up to 20% cheaper. However, policies are less expensive because your monthly benefit is not guaranteed, and needs to be proved at claim time. Be sure to review the pros and cons of each policy type before making a decision.

12 Level premiums can save you money in the long-run

While it starts more expensive, a level premium structure doesn’t increase due to your age. On the other hand, stepped premiums are cheaper at the start but increase as you get older. Compare premium structures at different ages.

13 Superlink your income protection

When looking for the cheapest income protection cover, you might want to consider splitting your income protection ownership across the super and non-super environment. By superlinking your income protection policy, you can fund part of your premiums through your superannuation.

Is income protection worth considering?

Your ability to generate an income is generally your most significant asset; therefore, you may want to consider protecting it.

If you have a family or ongoing financial obligation, such as mortgage payments, rent, groceries and school fees and do not have enough money saved to cover these expenses while you’re unable to work, income protection might help you avoid the financial strain.

Published: September 13, 2019

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