Buy Income Protection

Want to buy income protection but not sure where to start?

There are a number of options if you are in the market for income protection. Read on for smart steps to purchase cover.

Income Protection Insurance (IP) provides you with an alternative source of income if you are unable to work temporarily due to illness or injury. It usually pays up to 75% of your normal income and is designed to help you maintain your day-to-day living expenses during your recovery period.

While most people know that it’s important to have some kind of cover in place, it can be easy to feel slightly overwhelmed and even confused when it comes to actually comparing options and getting cover in place. Some common hurdles that can arise include:

Given the complexity of buying income protection Insurance, the question of whether to buy it yourself or to seek professional advice is an important consideration.

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3 options for buying income protection insurance

There are three main ways to purchase income protection insurance:

  • Direct from an insurance company
  • Through a financial adviser
  • Through your superannuation fund

Each method has its own advantages and disadvantages that will be discussed below.

Buying direct from the insurance company

Buying your income protection Insurance direct (generally online or over the phone) is a fast, simple way to purchase cover.  Direct IP policies are simple and straightforward. The underwriting process is quick and painless, so if you have an idea of the policy you need you’re only a phone call away from having cover. However, the onus is on you to understand the various terms and conditions and select an appropriate level of cover.

The goodThe not so good
  • Quick application: Cover can be purchased entirely online or over the phone with no medical or blood tests
  • No tailored comparison: One major drawback is that you are not comparing from a range of different options with the help of an adviser.
  • There may be an option more suitable for your situation you are missing.
  • Involuntary redundancy: Some direct policies offer optional involuntary unemployment benefit.
  • No adviser…no help. You don’t have the assistance of an adviser in helping you compare different options or determine an appropriate level of cover to take out.
  • Can provide cover for high-risk or unemployed workers: Direct life insurance can be a viable option for applicants that have been unsuccessful in getting cover due to pre-existing medical conditions or if they are a self employed worker with no super fund
  • Reduced benefit. Most direct policy benefits are capped at $1 million. Retail policies generally provide up to $15 million in cover.
  • Cover can be increased without having to undergo additional underwriting: Another key benefit is that you can make adjustments to your cover without having to undergo additional medical underwriting. This is a massive benefit if your health has deteriorated since first applying.
  • Underwriting done at claim. Increased risk of claim being rejected as the underwriting is completed when you submit a claim. With no formal underwriting, there is a risk of not disclosing pre-existing conditions or dangerous pastimes that are not covered.

Buying through an adviser

Buying income protection Insurance with the assistance of a financial adviser can help ensure you find cover that’s tailored closer to your needs. An adviser will explain terms and conditions and ask the right questions to tailor a package with features relevant to your situation. Because of this, the process will usually be more time consuming (although it can be done over the phone), the cover will be more comprehensive (and possibly more expensive) and the underwriting may take longer than if you were buying direct from the insurance company.

The goodThe not so good
  • Compare the market for you. An adviser will use their knowledge of the market to compare multiple policies simultaneously for you. They will work to find cover that matches your needs.
  • Longer application process. With increased underwriting, applying for advice-based income protection is a longer process and you may be required to submit medical evidence if you suffer from a pre-existing condition.

 

  • Help you determine a suitable level of cover. An adviser will review your situation to help you determine what benefits are/aren’t necessary on your policy. They will tailor the policy closer to your needs.
  • High-risk applicants can find it harder to get cover. Underwriting at application means that it can be difficult for some applicants to get cover. That said, an adviser could help you find providers that are willing to offer cover as entry requirements can vary considerably.
  • Assist you with your application. Once you have found a policy you are interested in, your adviser will help you gather the necessary paperwork and submit it appropriately.
  • No charge to you. As advisers receive commission payments from insurers for new clients, there is generally no additional charge to you to receive their advice.

Buying through your super fund

Many funds provide an income protection benefit as part of your super, with no underwriting required. As the benefit is paid from funds you’ve accumulated, there are no upfront out-of-pocket expenses. One of the main detractions for getting cover through your super is that it tends to be fairly basic, often with no choice of benefit period, waiting period or occupation definition. It is also tied to your superannuation, so if you change funds, you will no longer be covered.

The goodThe not so good
  • Cheaper option. Cover is taken from your super contributions so you don’t notice it in your take home income.
  • Reduced benefit period. Benefit period generally capped at two years.

 

  • No medical examinations. Similar to buying direct, there is no medical examinations required to take out basic cover.
  • Digging into your funds. Your retirement funds are reduced as your premiums are funded via super.
  • No restriction on occupation. There is no restriction applied to certain occupations for cover through superannuation.

 

  • Some benefits not provided. Some ancillary benefits such as child cover, needle-stick or rehabilitation expenses are not offered by super policies.
  • Complex claims process.As the claim is paid to the fund trustee first who then must approve the claim, the process of receiving the benefit payment can be drawn out.
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What should I be looking at when comparing different policies?

If you seek professional advice regarding income protection Insurance, your adviser can assess your situation and let you know of any additional features that could be worth considering for your policy. If you’re going it alone and buying direct, you will need to have an understanding of the different features and factor them in when comparing policies. Some of the questions you should consider include:

  • Is the policy index-linked? An index-linked policy ensures the premiums and benefits increase every year to keep pace with inflation and the Consumer Price Index (CPI).
  • Is it a non-cancellable policy? Can it be renewed each year without having to undergo additional underwriting?
  • Does it have Guaranteed Future Insurability? This ensures you an you increase/decrease your level of cover as your situation changes if necessary without having to undergo additional underwriting.
  • Is the benefit affected by other income? Do you have to use up your sick leave entitlements or forfeit any Centrelink payments before being eligible for a benefit.
  • Is it ‘own occupation’ or ‘any occupation’ cover? Will a benefit be paid if you can’t perform your normal occupation or only if you can't perform any occupation for which you're suited?
  • What is the waiting period? Most policies offer a number of different waiting periods to choose from, generally between 30 and 90 days. Some super funds may have a longer waiting period applied to receive a pay out, as is often the case with insurance through super (because of the additional involvement of the fund trustee)?
  • How long will the benefit be paid for? Is the standard two year benefit period applied or is it less? Will it be long enough for you to fully recover and return to work?
  • What additional benefits are offered? Most policies will offer additional benefits to provide extra assistance while you are recovering to cover rehabilitation and other costs that may arise.
  • How is disability actually defined? It’s crucial to get a clear idea of what the insurer will define as disability as conditions can vary extensively.
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How can I save when purchasing cover?

There are ways to reduce the cost of your premiums with any form of insurance and income protection Insurance is no different . Ways to save when purchasing cover include:

  • Select the right waiting period (anywhere from 14 days to 2 years). Long enough to reduce your premium cost, but no longer than you can afford to be without a benefit.
  • Select the right benefit period (from 2 years to retirement). Short enough to reduce your premium cost, but long enough to allow you to survive financially until you can return to work.
  • Be selective with the options you choose. Only choose those options which are relevant for your situation and which offer the best value for money.
  • Decide between an agreed or indemnity value policy. Decide whether you need a guaranteed benefit amount (agreed value costs around 20% more) or whether a reduced amount would be sufficient if your income were lower at the time of making a claim (indemnity value).
  • Decide between stepped or level premiums. Stepped premiums will start off lower but increase gradually overtime. It’s generally cheaper in the long run to maintain level premiums.
  • Apply early. The younger you are the more competitive your premiums will be.
  • Pre-pay before June 30. Premiums are tax-deductible if you pay before the end of the financial year.
  • Quit smoking. Smokers pay almost twice the premiums of non-smokers, so giving up will not only save you money in general, but on your premiums as well.

Finally, the number one way to save, not just on your income protection Insurance, but on any form of insurance, is always to shop around. Never settle on the first or cheapest policy, but compare a number of policies from a number of different providers, because insurance is a highly competitive industry and a better deal can appear quite literally overnight.

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Apply online or over the phone without a medical exam with these direct brands

Details Features
Income Protection
Income Protection
Cover up to 85% of your income up to $10,000 per month if you can't work due to sickness or injury. Cover for over 1,000 jobs and full-time, part-time and self-employed.
  • Monthly benefit up to $10,000
  • Cover for applicants up to age 60
  • 30 day cooling-off period
Go to site More info
Income Protection
Income Protection
Receive up to 75% of your income each month to a maximum of $25,000 if you can't work due to serious illness or injury.
  • Monthly benefit up to $25,000
  • Available for applicants up to 59 years old
  • 30 day cooling off period
Go to site More info
Income Protection
Income Protection
Receive up to 75% of you income (up to $10,000 per month) of your income if you're unable to work due to serious illness or injury.
  • Up to $10,000 monthly income replacement
  • Choice of benefit period of 1, 2 or 5 years
  • Involuntary Unemployment Cover up to 3 months
Go to site More info

Picture: Shutterstock

William Eve

Will is a personal finance writer for finder.com.au specialising in content on insurance. While he cannot give personal advice to clients, Will enjoys explaining the intricacies of different types of protective cover to help individuals and businesses find affordable cover that won't leave them underinsured.

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