Beginner’s Guide to Income Protection: Safeguard Your Ability to Earn an Income

Educational Video: Income Protection

Save for Rainy Days with Income Protection

Many Australians will be forced to take time off work at some point in their life, either due to an illness or injury, and often for an extended period of time. According to a report by The Institute of Actuaries of Australia in 2000, one in three Australians has a chance of becoming disabled for up to three months before turning 65, with three in every four Australians at risk of being diagnosed with a serious illness during their working life, as found by The Australian Bureau of Statistics (ABS).

Your ability earn an income should be treated as one of your valuable assets. Yet, only 31% of Australians have insured themselves with income protection insurance (TNS/IFSA, 2006), leaving the remainder of our working population financially at risk if anything should happen to them and they are unable to work.

Consider this - if you are sick or in a serious accident, do you have a backup plan if you are unable to work for an extended period? How long will you be able to rely on your hard earned savings to cover your everyday expenses? Think about how frightening it will be if you find yourself incapable to work again at your full capacity.

With income protection, you will never have to face this hardship by providing a regular replacement income if you are forced out of work. Even if you are not married and have no dependents, the benefits can ensure that you won't be forced into severe financial trouble.

Meet Michael and Sarah

Michael, 32, was working as a full-time Civil Engineer in Sydney. He earned $95,000 a year and was frequently on-the-road to manage projects in rural areas in Australia. He had been happily married to Sarah, 30 and were proud parents to their three year old son, Matthew.

Before Sarah became pregnant, she worked as an Accountant and was earning $75,000 a year. She had planned to return to work when their son started school.

With a young child and only one income earner in the family at the time, Sarah urged Michael to consider having some form of protective insurance if he can't work because of a serious illness or accident.

Sharing his wife's concerns, Michael decided he should speak to an insurance consultant to discuss his options and determine the best insurance cover to protect him and his family in case anything should happen to him. After assessing Michael and Sarah's situation, the consultant advised Michael to take up a joint life cover plan with Sarah, with an additional income protection insurance to cover him should he be unable to work. The insurance expert was also able to find them a policy at an affordable rate with benefits and features that can provide them with the right level of protection.

Four years later, Michael was involved in a serious car accident when he was away working on a project in Queensland. He suffered broken collarbone and open fracture to his lower leg, which required surgery. Due to the severity of his fracture, he would have to seek rehabilitation with a physical therapist. He was also required to restrict any sports or heavy working activities for up to three months and to wear a protective walking cast for up to 18 months, to ensure the completion of consolidation and remodelling process of his fracture.

Luckily, Michael had income protection insurance to help provide the financial assistance he and his family needed, especially when he had to take time off work for 6 months to fully recover. With Sarah having returned to work when the incident happened, she was then able to take some time off work to take care of Michael.

Michael and Sarah were relieved that they were able to keep on top of the medical expenses and rehabilitation costs that were incurred with the benefits from income protection. They were able to continue their mortgage repayments, pay off credit card debts, and keep up with the daily expenses. She was also able to hire a housekeeper to help her with managing the household, while she was taking care of Michael and their young son.

Underinsurance amongst Working Australians

A study conducted by Lifewise and Natsem in 2010 found that one in five middle-income families in Australia will suffer the loss of a parent or be affected by a serious accident or illness that contributes to a parent's inability to work.

With only 4% of over 5 million families with dependent children in Australia that have adequate protection in place (TNS, 2005), Australia has become one of the most underinsured nations amongst other developed countries. Every year, there will be 236,000 working age parents that suffer from a serious illness or injury and over 17,000 of them will be forced to stop working, either for an extended period of time or permanently (Lifewise/Natsem, 2010).

According to a Life Insurance Survey by Comminsure in 2011, 62% of Australians admitted that they are most concerned of having enough money for everyday expenses. With more than half of Australian families who would rely on personal savings if an unforeseen event occurred, it is important to consider the possible consequences if your savings can no longer sustain your daily living requirements if you have suffered a disability and cannot work for extended period of time.

Common household expenses often include:

  • Rent or mortgage repayments
  • Utilities; electricity, water and gas
  • Telecommunication expenses; phone and Internet connections
  • Credit card debts
  • Loans; personal loans, car loans, etc.
  • Insurances; health, car, home and contents insurance
  • Children's education expenses
  • Daily living expenses; food, groceries, etc.

Whether or not you have dependents that rely on your income, the fact remains that you will still have financial commitments to meet. Consider carefully if you can meet all these expenses relying only on your personal savings and two weeks worth of sick pay - what will happen if they are no longer enough a few more months down the track and you are yet to recover from your illness or injury? Are you willing to risk your well being?

Income protection insurance can provide financial aid that is most dire in times of difficulty due to unforeseen circumstances. It serves as a replacement income which offers support to you and your family in sustaining a sense of normalcy and alleviating all the financial stress, so you can focus on getting better and back on your feet.

Compare income protection quotes from these direct brands

Name Product Short Description Maximum Monthly Benefit Maximum % of Income Covered Maximum Benefit Period Waiting Period
Protect your lifestyle with Virgin Income Protection and new eligible customers can earn 25,000 Velocity Points. Ends 31 Aug 2018. Min monthly premium and T&Cs apply.
5 years
14, 28, 60, or 90 days
Join Qantas Income Protection and earn up to 100,000 Qantas points. T&CS apply.
5 years
2, 4, 13 weeks or 2 years
Cover up to 75% (to a maximum of $25,000) of your monthly income with NobleOak Income Protection. Benefit period can be tailored to suit your needs.
2 years or to the age of 65
30 or 90 days
Cover up to 75% of your monthly income if you can’t work due to illness or injury, up to a maximum of $10,000 a month. Take out cover today and you could get a bonus $100 Gift Card.
5 years
30 or 90 days
Receive up to 75% of your income (up to $10,000 per month) if you're unable to work due to serious illness or injury.
5 years
30 or 90 days

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Coverage is the amount of money that you will be paid in the event of a claim. An insurance consultant can help you determine an appropriate amount. Calculator
Provides a lump sum payment if you become totally and permanently disabled and are unable to return to work.
Provides a lump sum payment if you suffer a serious medical condition. Cover can be taken out for 40-60 medical conditions depending on the policy you choose.
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What Income Protection can do for You

Income Protection is a type of insurance to provide coverage specifically for when you lose your ability to earn, due to a temporary disability caused by a serious illness or injury. It provides you with regular monthly benefits of up to 75% of your earned income, so you can continue providing for those who matter the most to you and keep on top of all the living expenses.

Income protection policies will only insure your monthly income to a maximum of 75%. This is to allow an incentive to all policyholders to return to work when they have fully recovered from their disability. While there may be some insurance providers that allow cover in excess of up to 15% - on top of your 75% insured income, it is important to note that the excess amount must be used to fund your superannuation contributions in the event of a claim.

Another benefit of income protection cover is that it provides a multiple of the monthly insured income to your dependants if you are to pass away, or are diagnosed with a terminal illness with 12 months to live. The maximum benefit for this feature may vary between providers, so it is essential to read the Product Disclosure Statement carefully. There are also other benefits and features to consider with income protection plans, allowing you the flexibility to tailor your policy according to your situation and needs.

The Additional Options That Mattered

Michael's Tailored Income Protection with Extra Benefits

Michael's role required him to travel frequently to manage projects in different states and with a young family to take care of, he decided to take up some extra features that would provide him with comprehensive coverage should anything happen to him.

Some of the features that Michael had chosen for his policy served him well when he was injured for an extended period of time, such as transport, rehabilitation and family support benefits.

When he had his accident in a remote area in Queensland, the transport benefit from his income protection policy reimbursed the transport costs he had to pay for an immediate treatment in a hospital in Brisbane.

The severity of Michael's injury forced him to be confined to bed. Michael's recovery at home was made possible with the help of family support benefit, which allowed Sarah to take some time off to provide immediate care for him.

In addition, Michael's income protection policy provided coverage for rehabilitation expenses, which proved to be significant following the ongoing treatments and home modifications for Michael's disability.

Aside from having the option to tailor your policy with the various features and benefits, you can also structure your income protection plan to suit your financial situation by considering the;

  • Waiting period: is the specified amount of time that you will have to be unable to work until you receive your first benefit payment. If you nominate a longer waiting period, the cheaper your premiums will be. The usual waiting periods can range from 14 days to 2 years.
  • Benefit period: is the period of time that you will continue to receive your benefits for. The longer the benefit period, the more expensive your premiums will be. Benefit periods that are offered by insurance providers will vary; however, the most common periods available are 2, 5 years, or up to age 65.
  • Indemnity or Agreed Value: Indemnity value policy looks at your income at the time of your claim, while Agreed value policy locks in the benefit amount that you will receive at the time of your application. Indemnity style policy is most suited to workers with fluctuating salaries, such as self-employed workers.
Choosing The Right Options That Meet Your Situation And Needs

Michael's Income Protection Plan and His Financial Situation

For his income protection policy, Michael decided to opt for 30 days waiting period. He wanted to make sure that he could get access to the benefits as soon as possible.

Taking into consideration the joint savings that he and Sarah had maintained for the family, he was confident that it should be enough to support them for at least a few months. Michael would also receive two weeks sick leave pay from his employer which would provide further financial assistance until he started receiving his income protection benefit payments.

He also decided to structure his policy structure as Agreed Value, as his salary would be relatively stable.


With the way life goes, unfortunate events such serious illness, injuries or death can happen to anyone in unexpected times. Remember that, even if you are a single young professional, that does not mean that income protection insurance becomes redundant. Just think of the daily expenses of your own household - who will still need to pay for them, if not you? Income protection can offer valuable assistance against financial hardship, so you have the opportunity to recover with a peace a mind and continue caring for those most important to you.

Richard Laycock

Richard is the Insurance Editor at finder, and has been wrangling insurance Product Disclosure Statements for the last 4 years. When he’s not helping Aussies make sense of the fine print, he can be found testing the quality of Aperol Spritzes in his new found home of New York. Richard studied Journalism at Macquarie University and The Missouri School of Journalism, and has a Tier 1 certification in General Advice for Life Insurance. He has also been published in CSO Australia and Dynamic Business.

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