Income Protection Insurance Explained – All you need to know


If we lost our jobs due to illness or an accident, many of us would struggle to pay our essential expenses, like our mortgage and rent.

A long-term insurance plan called income protection insurance ensures that you will receive a consistent income up until you retire or can find new employment. Learn how it functions, when you need it, and what to consider before going for it.

income protection insurance

What is income protection insurance?

Income protection insurance is a type of health insurance that reimburses a person for a portion of the income they lose when an illness or injury prevents them from working.

Income protection insurance will help you pay off debts and maintain a sufficient standard of living if you are injured and unable to work.

You won’t have any issues paying your mortgage or other bills if you have an unemployment income protection insurance policy in place.

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How does the income protection insurance work?

Income protection insurance:

  • makes regular payments to replace a portion/part of your income if you are unable to work due to sickness or an accident
  • pays out until you can return to work or until you retire, die, or reach the end of the policy term, whichever comes first.
  • pays out between 50% and 65% of your earnings if you are unable to work.
  • can be claimed as many times as necessary for the duration of the policy.
  • covers the majority of illnesses that prevent you from working, whether temporarily or permanently (depending on the type of policy and its definition of incapacity).

Before payments begin, there is frequently an agreed-upon waiting period (‘deferred’). The most common waiting periods are four, thirteen, twenty-six weeks, and one year. The lower the monthly premiums, the longer you wait.

It is not the same as critical illness insurance, which pays out a lump sum if you are diagnosed with a specific serious illness.


What does income protection insurance cover

Income protection insurance provides up to 90% of your pre-tax income during the first six months of your inability to work due to a partial or total disability and up to 70% for a predetermined period of time after that.

Based on your annual earnings in the 12 months prior to your illness or injury, income protection insurance is intended to replace your lost income.

Before filing a claim, the requirements for each income protection policy’s definition of partial or total disability must be satisfied. Check the product disclosure statement or the insurer’s website for information.

How much does the income protection insurance cost?

Your circumstances and the policy will determine how much you pay in premiums each month.

A wide range of diseases, conditions and circumstances are covered by income protection policies. Therefore, it’s important to compare the options available from various insurers.

The cost of income protection insurance is affected by the following:

  • your age
  • your occupation
  • whether you smoke or have smoked
  • the percentage of income you would like to cover
  • the waiting (or ‘deferred’) period until when the policy pays out
  • the range of illnesses and also injuries covered
  • health: your current health, weight, and also family medical history.

The cost of this income protection insurance will also depend on whether you pay:

  • a guaranteed premium, which stays constant for the duration of the policy, or
  • a standard premium, which the insurer may raise over time.

Guaranteed premiums may be slightly more expensive in the short term, but many people prefer the security of knowing what they will pay in the future.

How to buy Income Protection Insurance

Check to see if you already have income protection insurance through your super. Most super funds provide default income protection insurance, which is less expensive than purchasing it directly from an insurer. If necessary, you can increase your level of coverage through your super fund.

Income protection insurance can also be bought from:

  1. an insurance broker
  2. a financial adviser
  3. an insurance company

Income protection insurance premiums paid outside of super are generally tax deductible. Outside of super, policies typically provide a higher level of coverage as well as more features and benefits.


Income protection insurance’s worth can only be determined on an individual basis. If you’re not sure whether you could benefit from income protection insurance, talk to a professional for more information.

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