Life Insurance Australia :: Articles

Income protection insurance

What is income protection insurance and why is it important for Australians?

Income protection insurance

The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.

It's trite but true to say that, for most people, their most valuable asset is their ability to earn an income. But how relevant is income insurance to most Australians?
Ask yourself what would happen if you woke up tomorrow and found you were incapable of working for an extended period.
Could you support your household?
Meet your loan repayments?
Save for the future?
Income protection insurance, also known as disability insurance, pays you an income if you are unable to work because of sickness or injury.
You can insure to receive payments (usually monthly) of up to 75 per cent of your current income while you're out of action.

Doesn't WorkCover or my super fund already protect me?

Insuring your most valuable asset
Image for Insuring your most valuable assetWhile many people would consider their home or their car to be their most valuable asset, it's your ability to earn an income that is most important in shaping your financial future. Statistically, two thirds of working Australians will suffer an injury or illness that will sideline them for 90 days or more. The majority of these people would not be able to pay their mortgage or meet car finance and other loan commitments without adequate income insurance.
WorkCover protects you if your injury is connected with work. But it doesn't cover you for sickness or if you have an accident hiking on holidays.
It's worth checking on your super fund, though. Many super funds now provide salary continuance insurance which will pay you an income for up to two years if you're unable to work.
This may mean you can get away without income protection insurance, or opt for a cheaper policy.

How do I choose an income protection policy?

It's worth talking to an adviser (as opposed to a salesperson) about which one suits your needs. Most insurers have several products on offer and a range of options that come with each product.
The first choice is between an agreed-value policy and an indemnity policy.
With an agreed-value policy, you have to prove your income up front, but once that's done, you know exactly what you'll be paid if you're unable to work.
This type of policy is more expensive, but suits people like the self-employed who have variable incomes and want some certainty about their claims.
With an indemnity policy, the company generally insures you for what you say you earn up front, but asks you to verify your income if you make a claim.
Both types of policy can be increased each year for inflation, but if you're likely to have a rising income, it may also make sense to choose a policy that allows you to increase the sum insured without the need for new applications and medicals.
Income protection policies also come in basic and deluxe versions.
The basic version generally provides you only with income payments while the deluxe version can have add-ons such as paying nursing care or accommodation benefits or paying benefits immediately if you have an accident - rather than insisting on the normal waiting period.
It's also important to understand exactly when you can claim.
All income protection policies include definitions on when you are unable to work.
Some of the cheaper policies, for instance, say you can claim only if you are unable to perform your normal job; other policies will pay if you are unable to perform one or more of your important duties.
Policies also have exclusions - circumstances in which they won't pay - which are worth knowing.
There is also a range of choices to make on issues such as how long you're prepared to wait before making a claim and how long you want the income payments to go for if you do claim.

Is income protection expensive?

Premiums can vary significantly.
As a rule, women and blue-collar workers pay more, though the increase in stress-related claims by white-collar workers has resulted in higher premiums - especially for professionals such as doctors and lawyers.

Can I do anything to cut the costs?

Income protection insurance is tax-deductible, so the costs can be reduced by making sure you claim your premiums in your annual tax return. (But any claims you make will be taxed as income.)
Outside this, the simplest way to cut the premium is to opt for a longer waiting period or limit the period in which you can claim.
Waiting periods can extend as far as two years while income payments can be for as little as a couple of years or up to age 65.
Some insurers will give you a discount if you provide evidence of your income up front, and some offer lower premiums if you agree to a 12-month limit on payments for conditions caused by mental disorders such as depression or stress.
Many people also don't realise that they can insure for less than 75 per cent of their income - maybe insuring the full amount for the first two years and then 50 per cent after that.
Needless to say, you can also cut costs by not paying for extras that you don't think you'll need.
But bear in mind that the real test of the policy comes when you make a claim - paying a few extra dollars for certainty can be better than simply taking the cheapest deal going

Published: Sunday, 1st Aug 2021
Author: Paige Estritori


Life Insurance Articles

Life Events That Should Trigger a Life Insurance Review for Aussie Families
Life Events That Should Trigger a Life Insurance Review for Aussie Families
Life insurance is a cornerstone of financial planning for Aussie families, offering protection and peace of mind. But what happens when the bustling flow of life brings changes? This is where a life insurance review comes into play. A life insurance review is a thorough analysis of your existing policy to ensure it aligns with your current life circumstances and financial goals. - read more
The Impact of Parenthood on Your Life Insurance Choices
The Impact of Parenthood on Your Life Insurance Choices
Life insurance, a contract between an insurer and a policyholder, is designed to provide financial protection to loved ones in the event of the policyholder's death. For parents, this protection takes on a new level of significance. The birth of a child heralds a profound shift in priorities, with a focus on safeguarding the future of one's family. Hence, understanding life insurance options becomes a crucial aspect of responsible parenting. - read more
Life Insurance Comparison: Key Questions to Ask Your Insurer
Life Insurance Comparison: Key Questions to Ask Your Insurer
Life insurance is a crucial consideration for middle-aged to older Australians. It provides financial security for your loved ones in the unfortunate event of your death. Understanding the various options available is vital to making an informed decision. - read more
Common Mistakes to Avoid When Comparing Life Insurance Policies
Common Mistakes to Avoid When Comparing Life Insurance Policies
Choosing the right life insurance policy is one of the most important decisions for Australians, especially for those who are middle-aged or older. Life insurance provides financial security for your loved ones in the event of your passing, ensuring that they are not burdened with financial hardships. - read more
Understanding Life Insurance: How to Determine Coverage Amounts
Understanding Life Insurance: How to Determine Coverage Amounts
Life insurance is a cornerstone of financial planning, offering peace of mind to you and security for your loved ones. It's a contract between you and an insurance company: in exchange for regular premiums, the insurer agrees to pay a sum of money to designated beneficiaries upon your passing. This vital tool ensures that your family's financial needs can be met during an incredibly difficult time. - read more

Insurance News

Record Complaints Highlight Challenges in Australian Insurance Claims Processing
Record Complaints Highlight Challenges in Australian Insurance Claims Processing
29 Apr 2026: Paige Estritori
The Australian insurance industry is currently facing an unprecedented surge in consumer complaints, primarily due to delays in processing claims. This development underscores significant challenges within the sector, particularly affecting tradespeople and small business owners who depend on timely claim resolutions to maintain their operations. - read more
Assessing the Impact of Market Consolidation on Australian Insurance Competition
Assessing the Impact of Market Consolidation on Australian Insurance Competition
29 Apr 2026: Paige Estritori
The Australian insurance industry has undergone significant consolidation in recent years, leading to concerns about reduced competition and its potential impact on consumers, particularly tradespeople and small business owners who rely on diverse and competitive insurance options. - read more
Australian Senate Prohibits Use of Genetic Test Results in Life Insurance Underwriting
Australian Senate Prohibits Use of Genetic Test Results in Life Insurance Underwriting
29 Apr 2026: Paige Estritori
The Australian Senate has recently passed legislation that prohibits life insurers from using genetic test results in their underwriting processes. This landmark decision aims to protect consumers from potential discrimination based on their genetic information and to ensure fairness in the assessment of life insurance policies. - read more
Government Steps In to Secure Fertiliser Supply for Australian Farmers
Government Steps In to Secure Fertiliser Supply for Australian Farmers
29 Apr 2026: Paige Estritori
In response to global supply chain disruptions affecting fertiliser availability, the Australian government has partnered with chemical companies CSBP and Incitec Pivot to ensure a steady supply for the nation's farmers. This initiative comes amid challenges posed by the closure of the Strait of Hormuz, a critical passage for global trade, which has led to increased prices and uncertainty in the fertiliser market. - read more
CGU and WFI Insurance Collaborate with Ag Guard to Boost Agricultural Coverage
CGU and WFI Insurance Collaborate with Ag Guard to Boost Agricultural Coverage
29 Apr 2026: Paige Estritori
In a strategic move to bolster agricultural insurance offerings, IAG's Intermediated Insurance Australia business, encompassing the CGU and WFI Insurance brands, has announced an exclusive partnership with Ag Guard, a technology-driven agricultural insurance agency. This collaboration, set to commence in June 2026, aims to enhance risk selection processes and claims handling capabilities. - read more

Start Here !
life insurance
Apply now for your free Insurance assessment and price comparisons!

Start Here

Life Cover Amount:
Postcode:

All quotes are provided obligation-free by a participating broker from our national referral partner network. We respect your Privacy.


Knowledgebase
Replacement Cost:
The amount it would cost to replace or rebuild an insured asset with one of similar kind and quality, without depreciation.