Business Insurance Online :: Articles

Income protection insurance

What is income protection insurance and why is it important for Australians?

Income protection insurance

The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.

It's trite but true to say that, for most people, their most valuable asset is their ability to earn an income. But how relevant is income insurance to most Australians?
Ask yourself what would happen if you woke up tomorrow and found you were incapable of working for an extended period.
Could you support your household?
Meet your loan repayments?
Save for the future?
Income protection insurance, also known as disability insurance, pays you an income if you are unable to work because of sickness or injury.
You can insure to receive payments (usually monthly) of up to 75 per cent of your current income while you're out of action.

Doesn't WorkCover or my super fund already protect me?

Insuring your most valuable asset
Image for Insuring your most valuable assetWhile many people would consider their home or their car to be their most valuable asset, it's your ability to earn an income that is most important in shaping your financial future. Statistically, two thirds of working Australians will suffer an injury or illness that will sideline them for 90 days or more. The majority of these people would not be able to pay their mortgage or meet car finance and other loan commitments without adequate income insurance.
WorkCover protects you if your injury is connected with work. But it doesn't cover you for sickness or if you have an accident hiking on holidays.
It's worth checking on your super fund, though. Many super funds now provide salary continuance insurance which will pay you an income for up to two years if you're unable to work.
This may mean you can get away without income protection insurance, or opt for a cheaper policy.

How do I choose an income protection policy?

It's worth talking to an adviser (as opposed to a salesperson) about which one suits your needs. Most insurers have several products on offer and a range of options that come with each product.
The first choice is between an agreed-value policy and an indemnity policy.
With an agreed-value policy, you have to prove your income up front, but once that's done, you know exactly what you'll be paid if you're unable to work.
This type of policy is more expensive, but suits people like the self-employed who have variable incomes and want some certainty about their claims.
With an indemnity policy, the company generally insures you for what you say you earn up front, but asks you to verify your income if you make a claim.
Both types of policy can be increased each year for inflation, but if you're likely to have a rising income, it may also make sense to choose a policy that allows you to increase the sum insured without the need for new applications and medicals.
Income protection policies also come in basic and deluxe versions.
The basic version generally provides you only with income payments while the deluxe version can have add-ons such as paying nursing care or accommodation benefits or paying benefits immediately if you have an accident - rather than insisting on the normal waiting period.
It's also important to understand exactly when you can claim.
All income protection policies include definitions on when you are unable to work.
Some of the cheaper policies, for instance, say you can claim only if you are unable to perform your normal job; other policies will pay if you are unable to perform one or more of your important duties.
Policies also have exclusions - circumstances in which they won't pay - which are worth knowing.
There is also a range of choices to make on issues such as how long you're prepared to wait before making a claim and how long you want the income payments to go for if you do claim.

Is income protection expensive?

Premiums can vary significantly.
As a rule, women and blue-collar workers pay more, though the increase in stress-related claims by white-collar workers has resulted in higher premiums - especially for professionals such as doctors and lawyers.

Can I do anything to cut the costs?

Income protection insurance is tax-deductible, so the costs can be reduced by making sure you claim your premiums in your annual tax return. (But any claims you make will be taxed as income.)
Outside this, the simplest way to cut the premium is to opt for a longer waiting period or limit the period in which you can claim.
Waiting periods can extend as far as two years while income payments can be for as little as a couple of years or up to age 65.
Some insurers will give you a discount if you provide evidence of your income up front, and some offer lower premiums if you agree to a 12-month limit on payments for conditions caused by mental disorders such as depression or stress.
Many people also don't realise that they can insure for less than 75 per cent of their income - maybe insuring the full amount for the first two years and then 50 per cent after that.
Needless to say, you can also cut costs by not paying for extras that you don't think you'll need.
But bear in mind that the real test of the policy comes when you make a claim - paying a few extra dollars for certainty can be better than simply taking the cheapest deal going

Published: Sunday, 1st Aug 2021
Author: Paige Estritori


Insurance News

Deloitte's 2026 Insurance Predictions: Key Trends Shaping the Future
Deloitte's 2026 Insurance Predictions: Key Trends Shaping the Future
17 Apr 2026: Paige Estritori
As Australia's insurance industry stands on the cusp of significant transformation, Deloitte's latest report, 'Insurance Predictions 2026,' offers a comprehensive analysis of the key trends poised to reshape the sector. The report underscores the imperative for insurers to adapt to rapid technological advancements, escalating climate risks, and evolving regulatory landscapes. - read more
APRA Warns of Heightened Risks in Australia's Insurance Industry
APRA Warns of Heightened Risks in Australia's Insurance Industry
17 Apr 2026: Paige Estritori
The Australian Prudential Regulation Authority (APRA) has recently issued a cautionary statement regarding the elevated risks confronting the nation's insurance sector. This alert underscores the necessity for insurers to bolster their resilience against a backdrop of climate hazards, cyber incidents, and global geopolitical tensions. - read more
Private Health Insurance Premiums Set to Increase by 4.41% in April 2026
Private Health Insurance Premiums Set to Increase by 4.41% in April 2026
17 Apr 2026: Paige Estritori
Australian private health insurance policyholders are set to experience a significant premium increase, with rates rising by an average of 4.41% from April 2026. This adjustment marks the most substantial hike since 2017, reflecting the escalating costs associated with medical and hospital services. - read more
Debate Intensifies Over Proposed Legal Fee Caps in Australian Insurance
Debate Intensifies Over Proposed Legal Fee Caps in Australian Insurance
09 Apr 2026: Paige Estritori
The Australian insurance sector is currently witnessing a significant debate over the Insurance Council of Australia's (ICA) proposal to implement caps on legal fees associated with civil liability claims. This initiative aims to address the rising insurance premiums that have been a concern for small to medium business owners across the nation. - read more
Premium Affordability and Cybersecurity Emerge as Top Challenges for Australian Insurers
Premium Affordability and Cybersecurity Emerge as Top Challenges for Australian Insurers
09 Apr 2026: Paige Estritori
In the dynamic landscape of the Australian insurance industry, a recent survey conducted by Gallagher Bassett has shed light on the primary challenges confronting insurers in 2026. The findings underscore a significant reshaping of priorities, with premium affordability, cybersecurity, and labour shortages emerging as the most pressing concerns. - read more
Business Insurance Articles

How to Lower Your Insurance Costs Without Sacrificing Coverage
How to Lower Your Insurance Costs Without Sacrificing Coverage
Insurance costs can be a significant expense for businesses in Australia, and it is crucial to understand how they can affect your bottom line. With premiums on the rise, many business owners are looking for ways to cut costs while maintaining the coverage they need to protect their operations. - read more
The Importance of Adequate Insurance Coverage for Your Small Business
The Importance of Adequate Insurance Coverage for Your Small Business
For small businesses, navigating the intricacies of sustainability is a critical task that can be made more manageable through the prudent use of business insurance. Understandably, many small business owners prioritize immediate operational concerns over seemingly discrete matters like insurance. However, as we will explore, insurance is not a mere formality—it's a vital backbone to enduring success. - read more
How to Customize Your Business Insurance to Fit Your Company’s Needs
How to Customize Your Business Insurance to Fit Your Company’s Needs
Business insurance is a type of coverage that protects your company from financial losses that may occur during regular operations. These losses could be due to a variety of risks like property damage, legal liability, or employee-related incidents. - read more
Key Factors to Consider When Comparing Business Insurance Options
Key Factors to Consider When Comparing Business Insurance Options
Business insurance is a vital aspect of safeguarding your company's interests and mitigating potential risks. Whether you are a small startup or a well-established organization, having appropriate insurance coverage is essential for protecting your assets, finances, and reputation. - read more
Avoiding Underinsurance: How to Adequately Cover Your Growing Business
Avoiding Underinsurance: How to Adequately Cover Your Growing Business
When it comes to protecting the vitality and financial health of a growing business, insurance is a keystone. Yet, amidst the day-to-day hustle of driving your business forward, it's surprisingly easy to overlook the adequacy of your insurance policies - a misstep that can lead to the perilous state of underinsurance. In this article, we will delve into the essential knowledge and strategies to ensure your business is sufficiently covered, shielding it from unexpected setbacks and losses. - read more

Knowledgebase
Replacement Cost:
The amount it would cost to replace or rebuild an insured asset with one of similar kind and quality, without depreciation.