Compare Income Protection Insurance in Australia

Compare Income Protection Insurance

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What is Income Protection Insurance?

Income protection insurance in Australia is designed to provide you with a monthly income if you are unable to work for an extended period because you became sick or injured. The funds from an income protection benefit can be used to pay your rent or mortgage, and your living expenses, so you can focus on recovering.

How does income protection in Australia work?

Income protection (IP) insurance generally pays a monthly benefit of up to 75% of your regular before-tax income when you can’t work due to illness or injury. This benefit payment continues until you are sufficiently better and can go back to work or up until your maximum benefit period as outlined in your policy documents.

When looking for a salary protection plan suited to your unique requirements, there are a few things to consider:

Your Monthly Benefit Benefit Period Waiting Period
Generally, provides coverage for up to 75% of your income or up to $10,000 per month. The length of time you would like your monthly benefit paid to you. The amount of time you are willing to wait before your benefit kicks in.
When reviewing income protection quotes, be sure to compare similar policy types with the same benefit and waiting periods. Typical benefit period options include:
  • 2 years,
  • 5 years
  • Up to age 65 or
  • age 70.
Waiting periods usually range from:
  • 14, 30, 60, 90, 180 days or
  • 1 year or
  • 2 years.
Like all life insurance policies, you have the choice between Level and Stepped Premiums. Generally, the longer the benefit period, the more expensive the premium. Generally, the shorter the waiting period, the more expensive the premium.

Each income protection policy is different. It's crucial that your review the insurer's Product Disclosure Statement (PDS) before choosing the right match for you.

Things to consider when choosing your benefit and waiting period include:

  • Affordability,
  • How long can you go without receiving an income from your primary occupation,
  • How much sick, annual and long service leave you have, and
  • What other income you and your family have.

From Quote to Application We Guide You Through The Process

Should I have Income Protection Insurance?

If you are the primary breadwinner or do not have sufficient funds saved should you be unable to work for a period, then income protection insurance is vital. Those with a mortgage or property investments would also greatly benefit from being covered by income cover, as it can help ensure that your investments are protected.

Australian residents between the ages of 16 and 59 can typically apply for a salary protection plan, which can help cover:

  • Mortgage repayments
  • Rent
  • Day-to-day living expenses
  • Medical costs

Types of income protection insurance policies available in Australia

There are 3 main types of income protection in Australia:

  • Agreed Value Income Protection Insurance

    Your monthly benefit is based on income earned before your application. Meaning, your benefit payment amount will remain the same, regardless of whether your income has reduced or not. This policy type may be best suited for people whose income can fluctuate from year to year, for example, a freelance writer.
  • Indemnity Value Policy

    Your benefit is based on financial evidence requested at claim time. This means that at claim time, you will need to provide financial documents to prove your income. If your income has reduced after your application, your benefit payment will also be reduced. This type of cover tends to be slightly cheaper than the other kinds of policies available and may be more beneficial for people whose income is relatively stable, like a company employee.
  • Guaranteed Agreed Value

    This is a variation on the agreed value policy type. This type of policy is financially assessed using all relevant financial evidence before the policy is issued, and benefit payments may be guaranteed without financial proof being required, such as for a graduate with qualifications that correspond with a specific salary level. This type of cover is only offered by a select number of insurers in Australia.

The type of policy you should have depends on your circumstances and personal needs.

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Benefits of income protection in Australia

At its core, income protection policies are designed to protect up to 75% of your income if you suffer from a sickness or accident and are unable to work. However, did you know that most policies offer multiple built-in and optional benefits which can not only enhance your policy but can offer additional cover? Insurers typically offer a Standard or a Plus Income Protection policy:

  • Standard income protection: Offers several core built-in benefits and is generally cheaper.
  • Plus income protection policy: Includes additional benefits at a slightly higher premium.

The built-in core benefits of income protection include:

Specific Injury Benefit

  • Pays a minimum benefit when you suffer a particular injury or illness for a period specified in the insurers PDS. Injuries may consist of various fractures or complete loss of limbs, fingers or eyes. This benefit is payable even if you return to work during the payment period. Please note that certain providers only offer this an additional cost option.

Suspending Cover Benefit

  • If you are suffering from financial hardship or have recently lost your job, been made redundant or are taking extended leave, you may be able to suspend your cover for up 12 months. Meaning, you keep your policy and won't pay premiums. However, you will not be covered during this time.

Waiver of Premium

  • If you go on an income protection claim then you will not be required to pay premiums during this period.

Rehabilitation Expenses

  • Most policies offer a certain amount of cover for the costs of rehabilitation if it is completed through an approved program.

Accommodation Benefit

  • Reimburses accommodation expenses up to a certain amount, for you or a family member if you are confined to a bed and are either more than 100km from home or a family member is required to travel more than 100km to be with you.

Indexation

  • Increase your monthly benefit in line with increases in the CPI, so your policy keeps up to date with inflation. While this increase is generally automatically applied and will increase your premiums, you can opt out of the rise if you wish.

Optional income protection benefits you can add for an extra fee:

  • Trauma insurance benefit: A minimum benefit gets paid (usually a third of your monthly benefit) if you suffer a critical illness for a specific period as defined by your insurer’s PDS.
  • Increasing Claims Option: If you go on a claim for longer than 12 months, your monthly benefits will rise in line with the CPI. This will continue each year you are on claim.
  • Day 1 Accident Cover: Usually pays 1/30th of your monthly benefit during your waiting period if you suffer an accident and are totally disabled.
  • Mortgage/Superannuation Cover: Allows you to insure an additional 5% of your income to go towards your mortgage repayment or superannuation contributions.
  • Bed Confinement Option: Receive 1/30th of your monthly benefit for each day you are confined to a bed during your waiting period.
  • Business Expenses: Cover for your fixed business expenses if you are unable to work due to a sickness or accident. Rent, utilities, accounting and regular advertising costs are some of the costs that can be covered.
  • Needlestick Cover: If you are a medical professional and suffer a Needlestick injury and as a result suffer from a loss of income you can be covered for up to $1 million. Please note this benefit may come built-in for medical professionals.
  • Lump Sum Benefit Option: Certain insurers offer payment of your income protection benefit in a lump sum rather than as monthly instalments.

Optional Benefits are designed to customise your policy further to suit your individual circumstances. While these options do cost more, they can add significant benefit to your plan.

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How much income protection do I need?

You usually need enough cover to manage your living costs for the period you need your income to be replaced for. Since most policies pay up to 75% of your income, you multiply your annual income by .75 and then divide the total by 12 months. The amount calculated should give you a good idea of how much salary protection you need.

How much does income protection insurance cost?

Your income protection premium is calculated using your age, gender, occupation, level of income and some other questions asked during application time.

  • Your occupation: If you are employed in a hazardous trade, for example a firefighter, then an insurer may increase the cost of your premiums, compared to an office worker, because of your increased level of risk.
  • Your income: The higher your income, the higher your premiums will be. This is because the sum insured is higher due to your higher salary.
  • Your smoking status: As with life insurance, if you are a smoker then chances are your income protection premiums may be higher due to the many health risks associated with smoking.
  • Your age: As you grow older, your premiums will also increase. The younger you are the lower your premiums because you are generally healthier and less likely to suffer from an illness.
  • Your gender: Women will generally pay slightly higher premiums than men. This does not mean that an insurer is biased. It is a result of extensive research undertaken by life insurance companies, which shows that women are more at risk of suffering from illness compared to men.

Average monthly income protection premium for a 30-year-old non-smoker by occupation

Occupation Male Female
Account Clerk $22.17 $41.82
Builder/Carpenter $96.77 $140.82
Computer Programmer $20.28 $30.40
Teacher's Aide $27.05 $39.78
Architect $20.28 $30.40
Government Employee $28.21 $41.39

Source: Lifeinsurancedirect.com.au Retail Income Protection Indemnity Policies. $50,000 annual salary with a 30-day waiting period and 2-year benefit period (March 2018).

Why do women pay more for income protection?

Income protection cover for women is generally more expensive compared to men because statistics show that females are more likely to claim on salary protection. These high claim rates might be due to women generally lodging more mental health-related claims, as well female cancers striking earlier than male-type cancers tend to do.

Is income protection insurance tax deductible?

Yes, income protection premiums are generally tax deductible, allowing you to not only protect your income but also to reduce your tax liability to the Australian Tax Office. How much tax you receive back is based on your marginal rate of tax. While your premiums are tax deductible, any benefit you receive when claiming will be assessed as part of your regular income. Thus, a tax must be paid on it.

How to do an income protection insurance comparison in Australia

When looking to compare income protection plans to find one best suited to your unique requirements, there are a few things to consider, including your monthly benefit, the benefit and waiting period, built-in and additional benefits and your policy type. There is no one size fits all. It is essential to take your budget and unique requirements into consideration when doing your research.

Best income protection insurance reviews of 10 life insurance companies in Australia

Insurance Company Policy Average Monthly Premium Specified Injury Benefit Trauma Insurance Benefit
Priority Protection Vitality – Income Protection $39.39
Insurance with On Track – Income Protection $39.68
Accelerated Protection – Income Protection Standard $40.95 Option for an additional fee
Life Solutions – Income Protection $44.53
OneCare – Income Secure Essentials $46.08
Complete – Income Protection $47.90 Option for an additional fee Option for an additional fee
Protection – Income Care $51.11
Elevate Insurance Solutions – Income Insurance Plan $51.31
Protection Plans – Income Protection $58.64
Wealth Protection – Income Protector $70.13 Option for an additional fee

The above information was gathered using lifeinsurancedirect.com.au (March 2018). Calculations are based on 2-year benefit period of $3,000 a month and 30 days waiting period for an Agreed retail (advised) policy for a non-smoking 30-year-old female, administrative clerk, living in Victoria and earning $48,000 per year.

Get your income protection insurance quote online

Which income protection policy to take out is an individual decision, but for many people, it comes down to affordability. If you want a cheaper plan that still delivers value, then you need to gather a variety of quotes from leading life insurance companies and compare their features and premiums side-by-side.

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Frequently asked questions and answers

Is income protection insurance worth it?

If you need a consistent income to pay the bills or support your family, a salary protection plan will help you safeguard your salary if you can’t work due to disease or damage. Ask yourself, without income or cash flow, what will happen to your lifestyle?

How long does an income protection claim take?

When claiming for salary protection, you'll need to provide evidence of the illness or injury that has resulted in your inability to work and depending on your policy type, proof of your income. Income protection policies are usually paid in arrears, meaning you’ll have to wait an additional month on top of your chosen waiting period before receiving your monthly benefit.

What happens if I change jobs?

Some insurers may request you to notify them when changing occupations as this will have a direct impact on your monthly benefit and premium price. It is best to consult your insurer.

Need Help?

What are the exclusions in income protection?

The standard income protection exclusion most life insurance companies will have listed in their PDS refers to circumstances or events for which you will not be covered within the first 6 to 12 months (depending on your insurer) of your policy commencing, this includes:

  • Intentional self-inflicted acts and attempted suicide,
  • An act of war,
  • Uncomplicated pregnancy or childbirth,
  • Elective or donor transplant surgery

Is there GST on income protection insurance?

There is no Goods and Services Tax (GST) on income protection insurance because they are classed as a financial service. GST is, however, included in general insurances like your car and home insurance. Stamp Duty is included in your IP premiums, and your insurer will be responsible for these payments.

Does income protection cover redundancy?

No, income protection policies in Australia do not usually cover redundancy or involuntary employment. However, you can get redundancy specific coverage from a select number of general insurers, for example, nib, AAMI, Suncorp and Insuranceline.

Does income protection cover pregnancy?

No, most insurers in Australia will not pay an income protection claim for pregnancy or birth-related incidences, including termination or miscarriage. However, select life insurance companies provide a pregnancy premium waiver, which helps alleviate some financial pressure. The insurer pays your premiums for about six months, depending on the insurer. Your policy will stay enforce and you’ll still be covered.  

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