Best Income Protection Insurance*

Want the best cover* but don’t know where to start?

Income Protection is not a “one size fits all” type of product and finding the best product is actually a matter of finding a product that meets your actual needs and cover requirements. That said, we will do our best to give you an idea of what to look out for when comparing policies to ensure you get adequate protection that won’t send you broke.

Three easy ways to find a quality policy

  1. Understand what features are required for your personal situation e.g. Do you need agreed or an indemnity value policy? Is an own or any occupation policy more suitable?
  2. Understand how a policy works e.g. How long will you have to wait before payment? Are there exclusions on the policy?
  3. Take advantage of tax benefits to get extra value.

Continue reading our three-method guide below or if you're ready to compare policies:

Quick tip: What is income protection suppose to provide?

Income protection insurance ensures you and your family don’t endure any financial hardship in the event of serious illness or injury by providing an ongoing benefit of 75% of your regular income, usually paid monthly. This means you can focus on your actual recovery without stressing about covering mounting medical bills on top of your regular living expenses while your earning ability is put on hold.

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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
  • 21 day cooling off period
Go to site More info

What are the best income income protection insurance policies?*

Here are the best income protection policies according to the 2015 Money Magazine awards.:

Product NameProduct DetailsMaximum Age to Apply
Zurich Income Replacement Insurance - PremierCover up to 75% of your income in the event of a serious illness or injury. Extra coverage options are available.65
TAL Accelerated Protection - Income Protection Insurance StandardCover 75% of your annual income if you're unable to work due to injury or illness.64
TAL Accelerated Protection - Income Protection Insurance PremierCover 75% of your annual income if you're unable to work due to injury or illness. Comprehensive range of benefits.64

*Best ratings are based on a weighted scoring system. Benefits and durability account for 65% of the score and the first year premiums count for 35% of the score.

1. Six steps to finding the right policy for your personal needs

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Step 1. Make sure you understand how long your income will be replaced for

When looking for income protection insurance it is important to be aware of how long you will be receiving the benefit payments. This is an important first step in determining if the policy will be a match for your needs.

Individual policies will vary, but the benefit payout usually comes down to a choice between 1-, 2- and 5-year payout periods. The longer the payout period the higher the monthly premiums will be. Another factor to consider is age, as some policies will only offer coverage up to the age of 60, 65 or 70.

Step 2. Understand how long you will have to wait for payment if you’re injured/fall ill

An income protection waiting period is the time between becoming injured or ill and receiving your first benefit. The length of this period will vary depending on the policy and can range anywhere from 14 to 720 days. Here's the key difference between short and long waiting periods:

Step 3. Work out the maximum amount of cover you can apply for

Thankfully, it’s easy to estimate a coverage number when you apply for income protection insurance. Since payout is up to 75% of your income, use this calculation to find the number.

Income protection amount per month = (Current Annual Income) x (.75) / 12

So, for an annual income of $75,000, the maximum monthly benefit would be $4687.5

Step 4. Choose between agreed and indemnity value

There are two types of payout structures to consider when looking at income protection plans.

  • In an agreed value structure, the payout is based on your income at the time you apply for the policy. Agreed value will allow you to always know the payout amount and it won’t go down based on income; however, the premiums are higher. Agreed value is a good choice for self-employed or small business owners
  • Indemnity value has a payout based on your income at the time of the claim. Indemnity has lower premiums because it can fluctuate with income. This structure works best for those who may receive benefits from work or other sources if they become sick or injured, or those who cannot afford the high premiums of an agreed-value plan.

Step 5. Understand what contributes to your premium

The premium you pay for income protection insurance can change based on a few factors. These can include:

    • Age. Cost can increase with age while coverage may decrease.
    • Gender. Women generally have higher premiums because they are considered to be more susceptible to certain medical conditions.
    • Pre-existing medical conditions or illnesses. Insurers will need to know medical details and current treatments.
    • General health. This includes factors like obesity and blood pressure.
    • Whether you are a smoker. If you are a smoker you will pay a higher premium.
    • Occupation. High-risk jobs will have higher premiums compared to low-risk jobs.
    • Lifestyle. Potentially dangerous hobbies like racing, playing contact sports or frequent travel to underdeveloped countries can raise premiums.
    • Waiting period. A shorter waiting period will be more expensive than a longer one.
    • Payment frequency. Paying a premium annually instead of monthly can bring discounts.

To illustrate this, consider two people who have similar occupation, age and lifestyle, and are generally healthy. If the only difference is that one person is a smoker, the cost of income protection could rise by up to 50%. To level the costs, the smoker may have to increase the waiting time for benefit payout, have a shorter overall payout period, or decrease the payout age limit from 65 to 60.

Step 6. Choose a premium type that suites your preferences

Along with the health and lifestyle factors listed above, there are two different types of premiums which can make for higher or lower long-term costs: stepped and level.

  • A stepped premium starts out cheaper but increases over time as you grow older. If you think you may change plans within a few years or are on a strict budget, this is a good option.
  • Level premiums start out higher than stepped premiums but will remain consistent throughout the lifetime of the policy. If you are planning to stay with the same provider long-term, this is the best option.
  • Hybrid premiums are a combination of both stepped and levelled premiums. Hybrid premiums start out as a stepped premium and then convert to a level premium later in the policy.

Should I just go for the cheapest income protection policy?

It’s a common pitfall to decide to buy the cheapest policy in order to save money. While understandable, this should be avoided because it works against the reason you purchased a plan to begin with since it may not be enough to cover you when you need it. Saving money in the short term on a cheap plan may not make up for the income you lose if you are injured or ill and cannot work.

Recap: Questions to ask yourself before you buy

  • Agreed value or indemnity value? Agreed value policies pay a benefit based on your income at the start of the policy, which means the level of cover you receive is not affected by any fluctuations in your income. An indemnity value policy is cheaper and requires your income to be verified at the time you make a claim, so it may be affected if you have an unsteady income. This can be a more suitable option for self-employed workers.
  • How long will benefits last? The benefit period of your policy can be for up to two or five years, or you may continue to receive a benefit until you reach the age of 60 or 65. The more you pay for your policy, the longer the benefit period will be.
  • How much cover do you need? You will need to calculate how much income you will need to continue to meet all of your ongoing expenses and provide for your loved ones while you are unable to work.
  • How much does it cost? Your premiums are affected by your age, gender, health status and pre-existing medical conditions, smoking status, occupation, waiting period and the policy you choose. Premiums will vary between insurers so it is worth comparing a number of different options.
  • Stepped or level premiums? Stepped premiums start out cheaper but rise as you age, while level premiums are determined based on your age when you take out a policy but then remain the same. Level premiums will be more expensive to begin with, but if you’re taking out cover for a long period they will eventually be a cheaper option.
  • What is the waiting period? This is the amount of time you will have to wait after suffering your illness or injury before you can receive a benefit. These commonly range from about two weeks to one month.
  • What about if I become unemployed or am retrenched? Unemployment and retrenchment are not included in cover, but some policies will suspend your premiums while you are out of work.
  • Are the benefits indexed for inflation? Make sure that your policy is automatically indexed in line with the rate of inflation - this will ensure that you maintain an adequate level of cover over the life of the policy.
  • Can the policy be cancelled? Look for a policy that is non-cancellable, which means that it will be renewed by the insurer every year regardless of changes to your health or whether or not you make a claim.=

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  • What age restrictions are applied? Check to see whether a minimum and maximum entry age apply to your policy. Is there an age when cover expires?
  • Bundle cover? Can you combine your income protection policy with another form of life insurance if you wish?
  • What are the built-in features? Are benefits like guaranteed future insurability and automatic indexation built into your policy.
  • Medical test required? Will you need to undergo any medical tests before you can be approved for cover or will you simply have to answer a few health questions?
  • How are your conditions covered? How does the insurer treat pre-existing conditions? Will you still be eligible for cover and if so, what sort of special requirements (medical tests, premium loadings etc.) will you need to meet?
  • Can you adjust your cover? Can you adjust your level of cover at any time? What sort of information will you need to provide when you wish to do so?
  • Review your policy regularly. Your life and therefore your insurance needs are changing all the time, so it’s important to review your policy each year and check whether it still offers adequate protection.

What should I look for in the different companies I’m comparing?

  • Are they financially secure? It’s important to know if an insurer will be able to meet all its financial obligations to policyholders, so check its financial rating to make sure there will be no issue when it comes to paying out your claim.
  • A long, stable history? Research each insurance provider to find out more about its history and experience in the industry. Make sure you’re dealing with a registered financial institution that understands all the ins and outs of the life insurance business.
  • Range of policies on offer? There’s certainly no shortage of life insurance companies in Australia, so it’s important you choose one that offers policies that meet your cover needs.
  • Reputable customer service team? You can tell a lot about an insurer simply from the response you get when you call them. Life insurance is a critical expense for many Australians so you need to know that support and advice will be on hand whenever you need it. Look for companies that offer multiple support options (phone, email, online) and compare the hours during which that support is available.
  • Value for money? Compare all the features and exclusions on insurer’s policies to work out if you are truly getting good value for money. Cover from a certain insurer might be affordable and even cheap, but if it doesn’t offer all the features you want then is it really worth it.
  • Straightforward claims process? Look at the claims process that each insurer offers and ask yourself how easy it will be to place a claim. Will help be on hand every step of the way? How do the insurer’s other customers rate its claims handling process?
  • Proven customer satisfaction? The levels of satisfaction of previous customers offer an excellent gauge as to the quality of a life insurance provider. You can find plenty of reviews and ratings right across the world wide web - just remember not to put too much importance in any one review.

2. Understanding good and bad income protection policies

What does a quality income protection policy include?

When you’re choosing an income protection policy, the following features will give you an indication of the overall quality of each plan:

  • Coverage for a wide range of illnesses or accidents. This can be found in the product disclosure statement (PDS) of your insurance policy.
  • Premium waivers. Ability to waive premiums while receiving benefits
  • A shorter waiting period. A 30-day waiting period to receive benefits is a good number to look for as a balance between quality and cost
  • Choice of benefit period. Ability to choose how long you want to receive the benefit with clarity on how much it costs.
  • Additional benefit payments. This include in-home care, accommodation or travel cost and reimbursement for familycare.
  • Occupation specific benefits. One such feature is needlestick protection which adds cover in situations where HIV or hepatitis is contracted while carrying out nursing or doctoral duties. Other occupation-specific plans can offer special coverage for work-related injuries in construction or labour.

What does a bad income protection policy include?

Just as important as looking for markers of a high-quality policy, it is vital to be aware of common hallmarks of a less desirable policy.

  • Exclusions on common accidents or illnesses. It doesn’t offer coverage for certain illnesses or types of accidents.
  • It’s cancellable. It can be cancelled if your insurer  reevaluates your health.
  • A policy that is unaffordable in the future. Beware of the trap of stepped premiums that rise with your age as they could become unsustainable when you’re older.
  • A longer waiting period than similar policies. If the waiting period is long and you are paying a higher premium compared to similar policies, then it’s worth reviewing.
  • A short benefit period compared to similar-priced policies. If you are paid out for a shorter time when compared with similar-priced policies, take a second look.
  • A policy that doesn’t notify you of automatic indexation. While indexing helps you increase your sum with inflation, it can be a shock to the wallet if you unknowingly accept an automatic increase.

3. Getting extra value out of your policy

How I receive tax benefits with an income protection policy?

The premiums you pay for income protection insurance may be tax-deductible. If your policy is held outside of a super fund you can claim a deduction.

Income protection is tax deductible if the benefit is paid in regular instalments and replaces a regular income, and if the benefits are treated as income by the Australian Taxation Office.

How do I get a great policy but not pay too much?

Keep the following tips in mind when looking for a policy that offers both affordability and competitive features:

  • Choose an appropriate waiting period. Ask yourself how long you would be able to manage your ongoing expenses for if you were out of work. If possible, use this information to choose a longer waiting period and lower the price of cover.
  • Choose a shorter benefit period. The longer your benefit period the more you will have to pay for cover, so if you can afford to do so, consider selecting a shorter benefit period.
  • Choose optional extras wisely. Ask yourself whether it’s really worth your while adding optional benefits to your policy. While the flexibility to tailor a policy to your needs can be great in some cases, the extra cost may be more than is suitable for you.
  • Consider an indemnity value policy. Indemnity value policies are usually cheaper than agreed value policies.
  • Choose your premiums. If you’re taking out cover for an extended period of time, level premiums will usually be a cheaper option. On the other hand, stepped premiums can work out to be more affordable if you only want to have your policy in place for a few years.
  • Stop smoking. Your smoking status has a huge impact on your insurance premiums, so give this nasty habit away today. Not only will it save you money but it could also save your life.
  • Shop for discounts. Keep an eye out for multi-policy discounts, combined cover discounts, large sum insured discounts, and saving for paying premiums annually rather than more frequently.
  • Review your policy regularly. You may need to decrease your level of cover or you may find that there is another policy available on the market that offers better value for money.
  • Compare policies. Don’t just select the first policy you come across; compare the options from several insurers to see how they stack up against the competition.

Ready to start comparing policies?

Purchasing income protection is by no means a straightforward process and it’s easy to get bogged down in the different policy options, benefits, payment structures and add-ons. An insurance consultant can help you assess your situation to find cover to meet your needs while keeping within your financial means.

Receive quotes for income protection from top Australian insurers

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* The offers compared on this page are chosen from a range of products has access to track details from and is not representative of all the products available in the market. Products are displayed in no particular order or ranking. The use of terms 'Best' and 'Top' are not product ratings and are subject to our disclaimer. You should consider seeking independent financial advice and consider your personal financial circumstances when comparing products.

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