Income Protection Insurance in Australia

income-protection (1)

Looking to protect your income but not sure what your looking for? Find out how income protection works in Australia.

Income protection insurance can help ensure you are able to maintain your current way of life and keep on top of your regular expenses if you are forced to take time off of work due to injury or illness.

Whats covered?

Income protection covers you for injuries and illnesses that occur inside of the workplace. A policy will cover you by providing:

How does the waiting period work?

You will be asked to select an appropriate waiting period when you purchase income protection in Australia. This is the period of time from when are unable to work to when the monthly benefit payments commence.

Common questions around waiting periods

How long do waiting periods usually last?

  • Waiting period options vary from 14 days up to 2 years.

Should I choose a longer or shorter waiting period?

  • The waiting period you choose generally comes down to how long you feel you could survive without an income. You can save further on your policy by choosing a longer waiting period. You might be confident that you have enough savings and sick leave to fall back on for the short term period.

What is a Day 1 Accident Benefit?

A day 1-accident benefit will back-pay the policy owner the benefit for the waiting period. For example, if the policy owner had a 60-day waiting period, they would have to wait 60 days before they received any payment. The Day 1 Accident Benefit would repay the policyholder what would have been paid over that 60-day period so they can keep on top of their financial obligations.

Anyone considering a shorter waiting period or day 1 accident benefit on their policy should keep in mind any benefits they may be entitled from their employer including sick leave, long service leave or annual leave. Shorter waiting periods and day 1 accident benefit will usually come at an increase premium that may be reduced through the use of these other entitlements.

How do benefit periods work?

The benefit period as it's referred to in income protection insurance Australia wide is the maximum length of time you would like your benefit to go on for. This period can be from one to five years or to a specific age such as 60 or 65.

Obviously I should choose a longer benefit period...right?

This will come down to how much cover you believe you can fund yourself. The longer you want your benefit to continue, the higher will be the premium cost you will attract. At the same time, you may really need long term protection. You should take the cover out for as long as your finances will permit so that you continue to receive an income in the event of long term incapacity.

What's the difference between agreed value and indemnity value cover?

Income protection insurance in Australia comes with two options for you to choose from. It is one of the first decisions you'll have to make and a very important one. This is you'll have to choose whether to take out the insurance as an indemnity insurance or agreed value. Your choice will depend a lot on your employment situation. The basic differences in these two options are as follows:

  • Agreed Value Income Protection - This is the term used for when you prove your income to the insurance company at the time of application for the cover. The insurance company and yourself will then agree on the amount of benefit you'll receive (usually 75 percent of the agreed income amount). This will then be the amount you'll receive no matter if your income decreases or increases during latter years. This is also the dearest of the two options, usually around 20 percent more expensive.
  • Indemnity Value Income Protection - This choice is the cheaper of the two options you have as it leaves it up to you to state what your income is at the time of making the claim. But you will have to verify the statement at the time. This means if your income has decreased for any reason (an important factor for farmers and contractors to consider) your benefit will be lower than that anticipated when you took the policy out, as the benefit will be paid on the reduced amount.

Your decision will be based on whether your income is stable, rising, decreasing, or variable. Self employed and business people will probably be better served with an agreed value income protection policy and those in sound employment receiving a regular wage, an indemnity value income protection policy.

Does income protection insurance cover redundancy in Australia?

Cover for redundancy is currently only offered from general insurance providers in Australia and not if your income protection comes from a life insurance provider.

How do I qualify for redundancy payments from an insurance policy?

In order to qualify for a redundancy payment a worker usually:

Had to have been employed continuously with the same employer

Be made redundant through no fault of their own (which can be extremely difficult to prove)

Unable to receive any other form of income throughout the waiting or benefit period.

So what do typical income protection policies do when it comes to redundancy?

The main purpose of income protection insurance in Australia is to provide an ongoing benefit payment to cover losses incurred following a serious illness or injury. There are some life insurance policies that will provide assistance to policy owners if made unemployed by waiving premiums that are payable for a specified period. In addition, there are a select few policies that will cover outstanding loans i.e. car, mortgage for a specified period of time if the person is made redundant.

Anyone looking to find protection for redundancy should take the time to assess if they really stand to gain any benefit from it or if it will just be an expensive extra that may have been better put towards an emergency savings fund.

How is the cost of income protection determined in Australia?

The cost of income protection really comes down to a number of factors including;

  • The benefits
  • The sum-insured chose
  • Applicants age
  • Applicants sex
  • Applicants smoking status
  • Applicants medical history
  • Applicants occupation
  • Applicants general health
  • Policy design
  • Premium structure
  • Repayment frequency
  • Benefit period
  • Waiting period

Is it worth speaking with an adviser to receive help taking out income protection?

An adviser can provide great benefit to applicants that are looking to take out income cover but are not quite sure what they are after. An adviser will assess the applicant’s situation and cover needs to help them find an appropriate insurance solution with the policy details and definitions to give them the right protection.

Help finding a tailored policy

Benefits and features can vary greatly between insurers and an adviser will help applicants compare the hundreds of different options available to help them get a policy with the features and benefits that will offer the best protection without blowing their budget. This is achieved by trimming back expensive add-ons that are not really relevant for their situation. An adviser will consider the applicants;

  • Occupation
  • Job specification
  • Level of risk of occupation carries
  • Sum-insured needs
  • Other benefits that they may be entitled to
  • Other insurance cover they might have
  • Policy design requirements i.e. premium structure, benefit structure, repayment frequency
  • Discounts that they may be entitled to
  • Tax treatment

This tailored approach to finding insurance policies can not only mean that the applicant finds an appropriate level of cover but they are not paying too much for it. Insurance advisers are remunerated from the provider that provides the policy so there is no extra payment from the applicant required for the service.

What are the key reasons to consider income protection in Australia?

  • Premiums are generally tax deductible.
  • Sick leave usually only covers you for a couple of weeks but income protection can cover you for long periods up to the age of 65.
  • Income protection provides cover for injury and illness both inside and outside the workplace, as opposed to workers compensation which provides limited benefits if you are injured at work.
  • Most policies offer additional benefits to cover rehabilitation expenses so you can concentrate on getting back on your feat.

Compare Income Cover from Australian Insurers

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Compare income protection quotes from these direct brands

Product details Maximum cover Maximum Entry Age Cooling-off
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. $10,000 60 30 Get quoteMore info
NobleOak Income Protection
NobleOak 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. $25,000 59 30 Get quoteMore 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. $10,000 59 21 Get quoteMore info
Insuranceline Income Protection
Insuranceline Income Protection
Cover up to 85% of your monthly income (to a maximum of $10,000). $10,000 60 30 Get quoteMore info
Ezicover Income Protection
Ezicover Income Protection
Cover up to $12,000 income replacement when unable to work in any occupation due to sickness or injury. First month of cover is free. $12,000 60 30 Get quoteMore info

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William Eve

Will is a personal finance writer for 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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