Income Protection Insurance Information

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What is Income Protection?

Income Protection will cover up to 75 percent (some policies can offer higher) of your salary for a period if you’re temporarily unable to work because of sickness or injury (anything not allowing you to continue your work). There is no actual list of events in which you can claim, it is essentially anything that stops you from working, providing very broad protection.

You will continue to receive 75 per cent of your income until you return to work or to the end of the benefit period.

What are the options with Income Protection

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:

Do Income Protection products differ across different 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 (nursing care, hospital benefits, accident benefits)

Make sure you read the insurer’s product disclosure document (PDS) 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 decrease as you get older).
  • Gender (rates for females are higher than males).
  • Whether or not you smoke.
  • Occupation (manual based work 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.
  • Agreed or Indemnity style policy.
  • Minimum working requirements
  • Any extras chosen like ‘Increasing Claims’ etc.

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.

Alternative names for Income Protection

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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