What is income protection insurance?

Income protection is as simple as it sounds – it's insurance for your income. If you can't go to work because of sickness or injury, income protection will pay you a monthly benefit to replace your salary while you're out of action.

What is income protection insurance?

Income protection insurance is a monthly benefit that is paid to replace your income if you are unable to work due to illness or injury. Typically, payments are between 75-85% of your normal income. It is a really handy insurance to have if you rely solely on your income to live or have large financial commitments that would suffer if you were unable to earn an income.

Handily, income protection is often offered as part of superannuation policies. If you do not have income protection as part of your super you can also look at taking out a standalone policy.

How does income protection work?

Income protection insurance pays a monthly benefit if you're unable to work due to illness or injury. Basically, it's a stand-in for your regular earnings, so you don't fall behind on the bills.

Usually, income protection insurance will cover between 75-85% of your pay, but you can choose to protect a smaller portion of your income if you want to keep your premiums lower.

For example, you may have some savings which would tide you over, so only need to cover a smaller amount of your income.

If you want to claim on an income protection policy, you'll have to serve a waiting period first. This is the length of time between your first day off work and when you're eligible to claim. You set the waiting period when you first take out your income protection policy, and it's usually somewhere between 2 weeks and 3 months.

If you pass the waiting period and you're still unable to work, you'll then have to prove that your inability to work is due to illness or injury. This will typically be in the form of doctors notes and may include communication with your employer.

If you meet the waiting period and have proof or your inability to work, you will then receive monthly payments from your insurer. You can use the payments for whatever you like, including:

What does income protection cover?

Income protection can cover you for up to 85% of your normal income if you become too sick or injured to work for a period of time. Some insurers also offer an optional involuntary unemployment benefit (also called redundancy cover), meaning you can make a claim if you are let go unexpectedly. These are some of the common things you'll be covered for and also what is generally excluded under income protection insurance:

• Prolonged illness
• Total disablement
• Severe partial disablement

• Redundancy (optional extra on some policies)

• Illness or injury lasting less than the policy's waiting period
• Voluntary resignation from work
• Pre-existing conditions
• Regular pregnancy

What are the types of income protection?

When it comes time to take out your income protection policy, you'll be offered a choice between two kinds:

• Agreed value insurance. Under this, you'll be able to nominate a fixed claim benefit value up to 75% of your income at the time of taking out the policy. While this is the more expensive option, it can help preserve your benefit if you're unsure about your future income or know exactly how much you'll need to survive on in the event of not being able to work.
• Indemnity policies. These are more common and adjust your benefit value to reflect your income at the time of a claim instead of when you purchase the policy. They are cheaper, but your benefit can be affected by dropping to part-time work, taking extended leave or becoming unemployed.

Which Australian brands offer income protection?

The comparison below shows Finder partners offering income protection and some of the key benefits.

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Name	Product	Maximum Monthly Benefit	Maximum % of Income Covered	Maximum Benefit Period	Waiting Period Options	Policy Type	Apply
AAMI Income Protection		$10,000	75%	5 years		Apply directly online	Get Quote View details	If you’re an existing AAMI customer, you can save 5% on income protection. New customers can get one month free by paying annually.	Compare	loading Fetching your data...
NobleOak Income Protection Finder Award		$25,000	75%	Up to age 65		Apply directly online	Get Quote View details	Get your first month free when you apply for NobleOak Income Protection before 30 September 2021. T&C's apply.	Compare	loading Fetching your data...
Insuranceline Income Protection		$10,000	75%	5 years		Apply directly online	Get Quote View details	Get a $100 bonus gift after 2 months. Plus, and get 12 months cover for the price of 11 if you pay annually. T&Cs apply.	Compare	loading Fetching your data...
Suncorp Income Protection		$10,000	75%	5 years		Apply directly online	Get Quote View details	Sign up and become a member of Suncorp Benefits. Access savings of up to 15% from major retailers. Existing members can get a 5% discount off their policy.	Compare	loading Fetching your data...
Commbank Income Protection by AIA Australia		$10,000	75%	2 years		Apply via Broker	View details	Get income protection online in a few simple steps. Receive access to the AIA Vitality program and a 5% discount if you hold both life insurance and income protection policies with AIA & Commbank.	Compare	loading Fetching your data...
RAC Income Protection		$10,000	75%	2 years		Apply directly online	View details	You can get cover of up to 75% of your income, to a limit of $10,000 per month, with RAC.	Compare	loading Fetching your data...
RACQ Income Protection		$10,000	75%	2 years		Apply directly online	View details	Easily purchase RACQ income protection online, with access to the AIA Vitality program and a 5% discount for joint policies.	Compare	loading Fetching your data...
Bendigo MaxLife Income Protect		$10,000	75%	2 years		Apply directly online	View details	Take advantage of a 5% joint policy discount with Bendigo. Also, you can unlock policy savings through the wellbeing programme AIA Vitality.	Compare	loading Fetching your data...

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When can you claim income protection?

To make a claim on your income protection insurance, your insurer must be satisfied that you are disabled and cannot work.

Unfortunately, disability doesn't have a common definition across income protection policies. Instead, there are three ways that insurers assess degrees of disability:

• Duties-based disability. This is the most common definition of disability. Under this, you qualify for the full benefit amount if your injury or illness prevents you from performing the income-producing duties of your occupation. If you are still able to perform some of your duties, you may be eligible for a partial benefit.
• Hours-based disability. Under an hours-based definition, you qualify for full income protection if you are unable to work in your own occupation for at least 10 hours per week. If your working hours are reduced by illness or injury but you can still put 10 hours a week or more into your usual occupation, your policy may pay out a reduced benefit.
• Income-based disability. With an income-based definition of disability, your insurer will classify you as disabled if illness or injury has led to a reduction of your income by 20% or more. However, if you are still able to work and earn some income, you can receive a partial benefit.

Before you apply for a policy, make sure you're aware of how the insurer defines disability and what conditions you will need to meet to make a claim.

Tips from Germaine about income protection

• Maintain your relationship with your insurer by doing all they require. "My insurer requires me to see a medical practitioner to maintain my status."
• Be super accurate with updates to avoid putting yourself in "pre-disability" status. "If you don't provide an insurer with the right information, you could find yourself in a situation where you're not covered."
• Questions are key. "Ask lots of questions about how your cover works to see how you can customise it."
• Cancer sufferers can access their super early. "It's known as early access. Some funds have different rules for granting this, so make sure you contact your fund."

How do you make a claim?

If you have to make a claim to your income protection policy provider, you'll need to provide them with evidence of your illness or injury. Calling your provider to see what evidence they need can speed up the process and prevent delays.

Some of the information you usually require includes the following:

• Your policy number
• The date your symptoms or health problem started
• When you stopped working
• Any medical forms from your doctor
• Copies of medical tests if relevant
• A Medicare authority form so that your insurer can gain access to medical forms and information

What are some typical income protection questions?

When applying for your income protection policy, your insurer will ask you the following questions:

• Basic information. Things like age, gender, income and occupation will factor into your premium costs.
• Medical conditions. If you have pre-existing medical conditions, such as diabetes or kidney problems, or if you're a smoker, your insurer will need to know. Sometimes they will require a copy of your medical history.
• Other relevant information. If there's anything that you think might affect your cover, such as if you're planning to switch to part-time work in the near future, you should let your insurer know.

Since you're the one purchasing the policy, you're entitled to ask questions too. You should consider checking the following:

• Disability definitions. As mentioned earlier, insurers define disability in several ways. Ensure you know what your insurer uses.
• How the cover changes over time. Some income protection policies can change as you age or switch occupations.
• Accident waiting periods. Certain policies will skip the normal waiting period if you suffer an accident and start paying your benefit right away.
• Exclusions. Make sure you know what won't be covered by your policy.

Other things to know about income protection

If you have any income protection questions left, here are some final things to consider:

• Workers compensation does not replace income protection. Just because you are covered by workers compensation does not mean income protection isn't useful. Workers compensation will only help you if you are injured in a work-related incident, while income protection can apply all the time, anywhere, and usually has fewer requirements to claim.
• You can take out cover through your superannuation. Income protection cover through your superannuation fund is generally cheaper than a standalone policy but will not offer the same level of cover.
• Your premiums are tax deductible. Income protection insurance premiums are generally 100% tax deductible. This may change if your cover is funded through your superannuation, so it could be worth getting in touch with a certified tax specialist to help you with any tax-related questions you may have.
• Some insurers offer day-one accident cover. There are some policies that provide cover straight away if you are injured in an accident and unable to work. This means there is no need to serve a waiting period.
• You are covered 24/7. Income protection insurance covers you 24 hours a day, 7 days a week no matter where you are in the world.

Some other questions you might have

• Who can apply for cover?

  • Cover is generally available for Australian residents aged between 18 and 63 (age next birthday). The maximum age on some policies is 59.

• Can I get cover if I only work part time?

  • Generally, you will need to be employed at least 20 hours per week and to have been in the same job for at least 12 months. The benefit is based on your pre-tax income after other associated expenses have been taken into account.

• Can I get cover if I am self-employed?

  • Yes, provided you work for at least 20 hours per week and have been self-employed for at least 12 months. You will need to provide some form of evidence to the insurers surrounding your earnings.

• Can I get cover if I have a high-risk job?

  • This will depend on the nature of your occupation and the insurer that you choose. Insurers have different eligibility requirements for workers. It may be worth receiving help from an insurance consultant who can use their knowledge of the market to help you find a suitable option. Learn more about income protection for high-risk manual jobs here.

• How much cover do I actually need?

  • While most policies by default will provide you with a default level of cover of 75-85% of your income, you may be able to find cover with a reduced benefit amount. Consider what you would need to cover in the event that you were unable to work.
  • It's also worth noting that some insurers will only provide a maximum monthly benefit (such as $12,000 per month), so it's worth checking to see exactly what you are eligible for.

• Can I increase or decrease the level of cover I am eligible for?

  • Yes, you can choose to adjust your policy (depending on the policy/insurer you have chosen) or increase/decrease your premiums as you see fit.

• Can I take out cover on behalf of my partner if they work at home?

  • No. You are required to apply for cover individually. If your partner is a stay-at-home, you may be able to apply for cover and include what's known as a homemaker option. The insurer will also need to verify their details in order for cover to be put in place.

• Do I need income protection if I already have life insurance?

  • Life cover and income cover both offer protection for different reasons and both are worth considering having in place. Life cover provides a lump-sum benefit in the event you pass away or suffer a terminal illness. Income protection provides an ongoing monthly benefit while you are unable to work for an extended period.

• Do I still have to pay for cover if I am receiving the benefit?

  • No, you don't have to pay for cover if you are under claim.

• Can I cancel my policy?

  • Yes, you can cancel your policy at any time you choose.

• If I cancel my cover, will I receive any payment?

  • No. There is no surrender value if you cancel your policy outside of the cooling-off period.

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