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Is income protection worth it?

Income protection is worth is if you and your family rely on your income to pay for essentials like your housing costs, bills and groceries. If you could do without your main income, then you might be able to do without income protection insurance.

What you need to know

  • Income protection can help pay your bills if you cannot work due to a sudden illness or injury.
  • Income protection is super valuable if you do not have emergency savings.
  • Even with savings, income protection may be important if you rely on a single income, have debts or are self-employed.

What does income protection offer me?

Income protection is an insurance policy you can take out that will pay you part of your income if you're unable to work because of getting sick or injured. Generally, income protection can pay out:

  • Up to 90% of your income for the first 6 months after you stop working
  • Up to 70% of you income after the first 6 months are over, up to your elected benefit period

Every fund offers different benefits and definitions of full and partial disability, which will affect what you can claim. Be sure to read the Product Disclosure Statement (PDS) carefully.

When income protection is worth it

Put simply, if you would be in financial stress if you stopped earning your income today, you could probably benefit from income protection. This will be more likely if you have dependencies, debts, or if you rely on a single income. Here are a few examples:

  • You have rent or mortgage repayments you couldn't cover without your salary
  • You have a spouse, children or other dependants that rely on your salary
  • You don't have enough savings to cover more than a few weeks of your regular expenses
  • You're a sole trader or casual worker, without access to leave or paid time off
  • You want the security of not having to rush going back to work if you're sick or injured

Finder survey: How many Australians have income protection insurance?

Response
I don't have any of the above insurance60.54%
Life insurance32.52%
Income protection insurance18.38%
TPD insurance14.32%
Source: Finder survey by Pure Profile of 1110 Australians, December 2023

When income protection might not be worth it

There are few times when you might not need income protection.

No expenses of dependencies: If you have low or no expenses, dependencies or debts, you might not need income protection insurance.

Close to retirement: If you've only few more years in the workforce and have enough savings, your response to sickness or injury might just be to retire early.

Low salary: Income protection is most useful to people earning a lot. If you're on a low salary, you might not benefit from income protection. You could look at Total & Permanent Disability insurance instead, whichpays out if you become permanently unable to work, regardless of earnings.

These aren't the only groups who might not need income protection, and you may still benefit if you fall into one of these categories. You should speak to a licensed financial planner before making any a decision.

How much savings do you need to not need income protection?

Unfortunately, Finder research finds most Australians have far less than 3 month's earnings in their savings. According to Finder's Consumer Sentiment Tracker data from July 2023, around 60% of Aussies have less than 3 months of savings. The full data is in the chart below.

Compare policies from Australian income protection brands

1 - 6 of 12
Name Product Maximum Monthly Benefit Maximum % of Income Covered Maximum Benefit Period Minimum Entry Age Sum Insured
TAL Accelerated Protection Income Protection
$30,000
Up to 70%
Up to
Age 65
18
$1,305 million
Get up to 70% of your income covered with flexible short and long term benefit periods.
AAMI Income Protection
$10,000
Up to 75%
Up to
5 years
18
$222 million
Take out a new AAMI Income Protection policy and get $100 eGift card after your first 4 months of cover. T&Cs apply. Ends June 30, 2024.
NobleOak Income Protection
$30,000
Up to 70%
Up to
Age 65
18
$65 million
With NobleOak, you can lock in a policy with a benefit period covering you up to the age of 65. Cover limits may go as high as $30,000.
Medibank Income Protection
$12,500
Up to 70%
Up to
5 years
18
Data not available
Get a quote in less than 5 minutes. No blood tests or medicals needed. 10% discount for Medibank health members.
ahm Income Protection
$10,000
Up to 70%
Up to
5 years
18
Data not available
Get a quote in less than 5 minutes. No blood tests or medicals needed.
Insuranceline Income Protection
$10,000
Up to 75%
Up to
5 years
18
$222 million
Protect your family with an Insuranceline policy and you can go into the draw for a chance to win a $1,000 gift card. New Customers only, T&Cs apply. Competition entries close on 31 July 2024.
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Sarah Megginson

My income protection policy is an insurance I hope I never have to claim on – I consider it to be a financial back-up in case something terrible happens. Is it essential? Probably not, but hopefully it will provide my family with some financial breathing space if and when we ever need it.
— Sarah Megginson, Personal finance expert and Aussie homeowner

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