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Income Protection Insurance vs Mortgage Protection

Choosing the right cover for your situation.

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If you were suddenly unable to work for a period of time, it's ideal to have some sort income stream to support your ongoing costs while you recover. There are two options you can take out: Income Protection or Mortgage Protection.

Both income protection and mortgage protection is designed to cover a temporary disability (e.g. illness or injury) by replacing a portion of your income. Here's the main difference:

  • Mortgage protection. Can only be used for your mortgage repayments.
  • Income protection. Can be used for mortgage repayments as well as other expenses e.g credit card debt, electricity bills, food.

Theses aren't all the differences but for getting a general idea, it's the most important thing to know. This guide digs a little deeper - so keep reading to learn more.

Receive income protection quotes from these direct brands and apply

Name Product Maximum Monthly Benefit Maximum % of Income Covered Maximum Benefit Period Waiting Period Options
AAMI Income Protection
$10,000
75%
5 years
14, 28, 60 or 90 days
Medibank Standard Income Protection
$7,500
75%
5 years
30 or 90 days
Medibank health members save 10% every year. T&Cs apply.
Insuranceline Rate Saver Income Protection
$10,000
85%
5 years
14, 28, 60 or 90 days
Get a $100 bonus gift after 2 months. Plus get 12 months cover for the price of 11 if you pay annually. T&Cs apply.
Suncorp Income Protection
$10,000
75%
5 years
14, 28, 60 or 90 days
Existing Suncorp customers can get a 5% discount.
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The differences between mortgage protection and income protection

Key DifferencesMortgage Protection InsuranceIncome Protection Insurance
Benefit PaymentProvides a lump-sum or ongoing benefit payment to cover your mortgage repayments if you pass away or suffer an injury/illnessProvides an ongoing benefit payment of up to 75% of your income if you are unable to work following serious illness or injury
Flexibility OptionsLess flexible and only offers limited additional featuresAllows you to choose your level of salary cover (usually up to 75%) and the waiting period for your cover
Basis for ClaimsYou can claim in the event of injury, accident, death or redundancyDifferent definitions in place for when worker is eligible to claim. They generally must not be able to perform the regular duties of their occupation
Application ProcessFast application with no medical or blood tests requiredWhether cover is available and the premium you pay will be based on a number of factors including age, gender, smoking status, occupation, hobbies and pastimes
 

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What is usually covered by Income Protection and Mortgage Protection?

Standard built-in benefits

  • Choice of agreed or indemnity value: Income protection gives you a choice between agreed value or indemnity protection. Agreed value guarantees your salary benefits at the time of your application, safeguarding against changes in your salary. Indemnity protection requires you to prove your salary if you make a claim. Agreed value benefits are up to 20% higher but are important for people with flexible incomes such as freelancers or small business owners.
  • Death benefit: This benefit covers you in the event of death or terminal illness.
  • Total and partial disability benefits: Most insurers include disability benefits in all income protection plans, but these differ between total and partial disability benefits. The definitions of total and partial disability differs between providers, but total disability generally stops you from working due to an illness or accident, whereas partial disability means you are able to work part time or in another occupation.
  • Stepped or level premiums: You have a choice between stepped or level premiums. Level premiums remain the same throughout the life of your policy, whereas stepped premiums start off lower and increase with age.

Additional features at an extra cost

These options differ between insurance providers, but some of the main additional options for life insurance cover include:

  • Superannuation contribution: Contributions to your super are continued while your are receiving an income benefit.
  • Involuntary unemployment: Income protection does not offer a payout for redundancy, but some providers offer features such as loan repayment cover or premium waivers.
  • Rehabilitation benefit: Your insurance provider will cover the cost incurred from rehabilitation that can help you if you become completely disabled
  • Accommodation, overseas or domestic transport: This option safeguards you if you become disabled while away from home.
  • Family support: This benefit in the event if you are totally disabled and an immediate family member must stop work to look after you.
  • Return to work bonus: Some insurers offer this benefit when you return to work after being injured.

Standard built-in benefits with mortgage protection

  • Death Cover: This benefit covers you in the event of death or terminal illness. Any difference between sum-insured and amount owing on mortgage can be paid to your estate.
  • Disability benefits: You will receive a monthly benefit payment to cover your mortgage repayments in the event of an illness or injury and you are unable to work.
  • Involuntary unemployment: Mortgage protection insurance will provide cover in the event of redundancy generally up to three months.
  • Complimentary accidental death cover: Complimentary cover for accidental death while loan provider is setting up home loan. This is usually provided for up to 2 months.

Important points to know regarding your Mortgage Protection policy

  • You will not be covered for any claims related to a an injury or illness that you received medical consultation for in the months before you purchased the policy
  • Involuntary unemployment cover is not available if you are employed in a permanent part time, casual, contract or temporary capacity for less that 20 hours per week or if you are a sole trader working less than 20 hours per week
  • Cover may only be available up to a maximum loan value

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4 Responses

  1. Default Gravatar
    donaldAugust 10, 2018

    Can I get Both payments MRI and IP, even if the total value means I am “receiving” more than 75% of my salary or equivalent?
    eg Salary $4,000 pm (IP $3,000 pm) and mortgage repayment is $2,000 pm.
    So will my mortgage be paid and $3,000 pm IP ?

    • Avatarfinder Customer Care
      CharisseAugust 15, 2018Staff

      Hi Don,

      Thank you for reaching out to finder!

      Generally, if you have multiple insurance coverage such as MPI and IP, you can make a claim on both however you cannot receive more than 75% of your monthly income from all sources. This means that, if you receive MRI benefit, you can still receive IP benefit, as long as the total amount of income you are receiving from all sources during a claim does not exceed 75% of your monthly income prior to the claim.

      Make sure to read all relevant documents such as PDS and policy terms and conditions before applying for any insurance policies to help you decide if it is right for you. You may also want to consult your insurance provider for information on making a claim when having multiple insurance coverage as different providers may have different policy terms and conditions.

      Cheers,
      Charisse

  2. Default Gravatar
    KevinOctober 13, 2016

    I’m am 67 my wife is 60 yrs old is that too old to get income protection to cover our housing loan we r both working still

    • Avatarfinder Customer Care
      MauriceOctober 14, 2016Staff

      Hi Kevin,

      Unfortunately the maximum entry age for income protection in Australia is 64 years old. You may find this page helpful.

      Note: Income protection insurance does not cover redundancy.

      I hope this helps,

      Maurice

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