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The Best Income Protection Insurance in Australia: 2022 Guide
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NEOSIs your most important asset protected if you can’t work due to an illness or injury? Income protection insurance pays a monthly benefit, generally up to 70% of your pre-disability income, if you’re unable to work due to an illness or injury as specified in your insurer’s PDS. Usually, the best income protection insurance for you has features and benefits suited to your requirements.
By investing in income protection insurance suited to you and your family, you won’t have any more worries about paying medical bills or putting food on the table while you focus on your recovery. Compare income protection policies and learn more about the benefit and waiting periods to find an option that works for you.
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How does income protection work?
Income protection insurance, which is typically a type of life insurance, pays you a benefit should a medical professional declare that you cannot work for a period exceeding the waiting period on your policy. Generally, your insurer will pay you a monthly benefit of up to 70% of your income before tax deductions. Once your benefit is paid, you will be able to use this benefit to pay your ongoing expenses to assist you in maintaining your standard of living.
When is income protection insurance worth it?
You may want to consider applying for income protection if you:
- Have a family to support
- Have a mortgage and debts
- Are self-employed or own your own business
In these circumstances, your income could be considered your biggest asset, so applying for cover is generally a good idea. The best income protection policies typically support you until you’re able to work again.
2021 changes to income protection policies
Starting in March 2020 and continuing throughout 2021, several changes to income protection policies were announced and implemented by APRA. These changes have caused a great deal of confusion, and you may not be sure of the implications of your policy.
Agreed value policies are no longer available
APRA has revised the way income protection policies are structured and sold. There is generally only one type of policy available now – indemnity value cover. This means that if you were to apply for a new income protection policy today, it would be for indemnity value cover.
Before these changes, income protection policies typically offered you the choice between the following types of policies:
- Indemnity Value income protection: Indemnity value policies are often cheaper than Agreed-value insurance, but these policies do not guarantee your monthly benefit. Indemnity policies generally pay out the lesser of 70% of your pre disablement income. Or your insured monthly benefit. This means that if your income were to reduce after you’ve purchased your policy, your monthly benefit would be less.
- Agreed Value Income Protection: This type of policy is typically a good option for people with fluctuating incomes because it locks in your monthly benefit. Premiums are generally more expensive than Indemnity policies, but an insurer can calculate how much money you will get at application time instead of claim-time.
- Guaranteed agreed value: You can get a guaranteed agreed value policy from a few select insurers. These types of policies typically work by converting your agreed value policy to a guaranteed agreed value policy when you submit your proof of payment. Your insurer will generally determine your monthly benefit based on the proof of income supplied with your application.
Changes to maximum monthly benefits
When the most recent changes to income protection came into effect, APRA made significant changes to how insurers calculate your pre-claim earnings. Previously, certain income protection policies would give you the option to have your pre-disablement income calculated according to the 12 best consecutive months of earnings over two to three years.
Now that the changes have been made, most insurers will look at your income earned in the 12 months before your claim. However, if your income varies monthly, some insurers may choose to assess your average earnings over two years. Learn more about how much income protection you may require to care for your loved ones.
Disablement definitions more stringent
Before the 1 October 2021 income protection changes, you generally had an “own-occupation” definition policy. If you had a policy with an “own-occupation” definition, you would typically be able to claim the full amount if you couldn’t perform at least one of your important income-producing activities for your occupation and not work in any other occupation.
However, after the October 2021 reforms, occupation definitions on most policies have changed depending on the length of time you’ve received your monthly benefits. Typically, you’ll find that insurers define disability as you being unable to perform all of the important income-producing activities in your own occupation for the first 24-months of being on a claim.
When this period is over, insurer’s will typically change their disability definitions to any occupation. After two years, you’ll need to be able to prove to your insurer that you are not able to return to work in any occupation. If you can return to work in a different occupation, then you will generally no longer be able to claim income protection.
Best income protection insurance review
The cost of your income protection policy generally depends on several factors. Your age, gender, occupation, income protection waiting period, benefit period, monthly benefit, and the company you purchase your policy from may impact the cost. Typically, it’s a good idea to compare several insurers’ policies to find a policy suited to your requirements.
Scenario 1
A 35-year old construction worker who earns $4,000 per month, lives in NSW and does not smoke is searching for an income protection policy. They are looking for a policy with a 2 year benefit period of $2,800 per month with a 30 day waiting period.
Review income protection policies available:
| Insurer | Male | Female |
|---|---|---|
 Accelerated Protection Income Protection Plan Focus (Standard) | $62.93 | $72.39 |
 Protect Income Cover (Standard) | $70.61 | $94.27 |
 Clear Choice Income Protection Flex Cover (Plus) | $87.54 | $105.34 |
Source: Life Insurance Direct Comparison Engine (February 2022)
Scenario 2
A 28-year old graphic designer who earns $6,000 per month, smokes and lives in Queensland would like to purchase an income protection policy. They are looking for a policy with a 2 year benefit period of $4,200 per month with a 30 day waiting period.
Compare policies
| Insurer | Male | Female |
|---|---|---|
Clear Choice Income Protection Flex Cover (Plus) | $42.47 | $64.36 |
 Priority Protection Income Protection Core (Standard) | $49.70 | $76.42 |
 Protection income Support (Standard | $50.28 | $76.93 |
Accelerated Protection Income Protection Plan Focus (Standard) | $58.66 | $78.67 |
 OneCare Income Secure (Standard) | $60.69 | $98.86 |
 Wealth Protection Income Safeguard | $63.21 | $96.26 |
 Insurance Income Protection Assure (Standard) | $74.31 | $95.36 |
Source: Life Insurance Direct Comparison Engine (February 2022)
Factors to consider when comparing the best income protection in Australia
When you are looking for an income protection policy that meets your requirements, you may want to look at the following aspects:
- Monthly benefits: With income protection policies, you’ll generally find that your premiums are more expensive if you opt for a policy with a higher monthly benefit. Insurer’s typically offer you the option to cover up to 70% of your income.
- Your waiting period: When purchasing a new policy, your insurer will typically give you the option to choose your waiting period. By opting for a shorter waiting period, you may pay more for your premium because a claim can potentially be paid for less severe illnesses or accidents.
- Benefit periods: By purchasing an income protection policy with a longer benefit will mean that you’ll typically pay more for your premiums. The insurer needs to cover a higher risk as your benefits could potentially be paid for a longer period.
- Premium structure: Generally, you’ll have the option to choose one of two different premium structures when buying a new policy.
Stepped premiums are typically less expensive when you first purchase your policy but increase each year as you get older.
Level premiumsstart more expensive but don’t increase due to a change in your age. - Built-in benefits: The best value income protection insurance usually includes a list of built-in benefits that add to the overall quality of your policy. For example, the premium waiver benefit, specific injury benefit, rehabilitation and accommodation benefit, and cover benefit suspending.
- Optional benefits: Generally, you might also have the option to add additional features for an extra fee. For example, increasing claims or super booster benefit options.
Compare and review income protection.
The top income protection policies typically ensure that you’ll still be able to care for those you love most even if you aren’t able to work because of illness or injury. To find the right income protection policy for you, it’s generally a good idea to compare all of the available options. Fill in the quote form below or give us a call on 1300 743 254 to speak with a specialist.
Frequently asked questions
Which insurer offers the best income protection?
Generally, this depends on your requirements. Compare income protection quotes from several leading insurers to find a company that offers the features and benefits you are looking for. Compare quotes or call us at 1300 743 254 to speak with a specialist.Is income protection worth having?
Yes, if you earn an income and have dependents who rely on your financial support, it’s typically a good idea to invest in an income protection policy. The best cover will allow you to continue providing for your loved ones so that you can focus on your recovery and return to work.Can you work while claiming income protection?
No, typically, if you were to make an income protection claim, you’ll need to prove that you cannot work as per the conditions set out in your policy. However, following a full claim, you may be able to go onto a partial claim (where you are working partially). However, refer to your insurer PDS.What’s the best income protection for redundancy?
Generally, income protection policies do not pay a benefit when involuntary unemployed. However, select insurers might waive premiums for a few months while you look for alternative work. Redundancy insurance is only available from select companies.
