Income Protection Insurance Information

Income protection insurance is sometimes known as income insurance or disability income insurance. This should not be confused with salary continuance insurance that is offered through superannuation.

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What is Income Protection?

Income protection will cover up to 75% or more of your salary for a period if you’re temporarily unable to work because of sickness or injury. However, it doesn’t just have to be illness: there is no actual list of events in which you can claim. Anything that stops you from working could potentially be a basis for a claim, providing very broad protection. You will continue to receive 75% of your income until you return to work or to the end of the benefit period.

What Options Do I Have?

Different companies will offer a range of individual options and some may be unique, however some common options that you will need to decide on include:

Is Income Protection Different Between Insurers?

Income protection can differ markedly across different insurance companies. The main differences are related to:

  • Definitions of disability, partial disability and recurring disability;
  • Definitions of income; and
  • Range of additional benefits (e.g. nursing care, hospital benefits, accident benefits).

Make sure you read the insurer’s product disclosure document carefully to see what conditions are included and excluded.

How Much Does Income Protection Cost?

Income protection insurance can be more expensive than life insurance, but the income protection premiums are tax deductible. Benefit payments, however, are considered income and therefore subject to tax (at marginal tax rates). Income protection insurance premiums vary according to the following:

  • Age: premiums may increase or cover can decrease as you get older;
  • Gender: rates for females are higher than males;
  • Habits: whether or not you smoke;
  • Occupation: manual labour attracts higher premiums than office work;
  • Waiting period: the time you choose to wait before receiving payment;
  • Benefit period: how long you will receive payments in the event of a claim;
  • Policy style: agreed or indemnity;
  • Minimum working requirements;
  • Extras: this could include increasing claims.

Income Protection Case Study

Situation: 40 year-old couple with two teenage kids and a $500,000 mortgage with the father earning $60,000 a year and the mother earning $20,000 for part time work. The father has an extended illness and is forced to take eight months off work.

Income Protection Insurance pays him $3,750 per month until he returns to work, allowing the family to meet their living expenses and continue paying the mortgage.

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