Explore Income Protection

What is income protection insurance?

Income protection is designed to replace between a maximum of 90% of your pre-tax income for the first 6 months and 70% every subsequent month if you were to get sick or injured and couldn’t work.

You may receive your benefits in the form of monthly payments for a specified period of time, or the payment could replace your income until a nominated age (e.g. 65); it depends on your policy, your level of cover and the insurer.

Read more about how income protection works here.

What are the different types of income protection?

There are multiple types of income protection cover on offer:

  • Income protection. As mentioned, typically replaces up to 70% of your monthly income for a period of timewhen you get sick or injured and cannot work.
  • Mortgage protection. Can cover your mortgage repayments in the event of your passing, the diagnosis of a critical illness, or if you are totally and permanently disabled.
  • Redundancy insurance. Can cover you in the event of involuntary redundancy, often as a part of an existing income protection policy.

Income protection vs life insurance: What’s the difference?

Technically, income protection is one of the four main types of life insurance policies, which are as follows:

  1. Term life insurance. Can provide a lump sum payment to your family or loved ones in the event of your passing or a terminal illness diagnosis.
  2. Total and permanent disability (TPD) insurance. Provides disability benefits(often as a lump sum) if you become permanently disabled. Your eligibility may be dependent on your inability to return to your usual occupation or any occupation. 
  3. Trauma cover. Can provide lump-sum benefits if you suffer a serious medical incident or are diagnosed with severe medical conditions (such as cancer). Unlike TPD, it is meant to cover any income you’ve lost while you recover, such as surgeries, rehabilitation or expenses you require while off work.
  4. Income protection. The insurance benefits from an income protection policy are meant to cover your everyday expenses during a temporary loss of work due to injury or illness.

Learn more about which type of life insurance is right for your situation here.

How much are income protection premiums?

Insurance premiums are essentially the cost of your insurance policy. Often paid monthly, IP premiums can vary from person to person, with the following factors all potentially influencing how much you could pay:

  • Age and gender
  • Occupation
  • Smoker status
  • Medical history and general health.

It’s worth comparing life insurance quotes with our comparison service to quickly see how much you could be looking at paying based on your circumstances.

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Income protection through superannuation funds

As well as standalone income protection policies, you can also get one through your super fund. Some super funds will automatically include it, but according to ASIC, it’s more common for super funds to include term life insurance and TPD insurance.

“Most super funds offer default insurance, which means it is not tailored to any member’s particular circumstances,” ASIC says.

As always, it’s important to understand what cover you require given your circumstances.

Are income protection premiums tax-deductible?

According to the Australian Taxation Office (ATO), income protection premiums are tax-deductible.

“Only the premiums you pay to protect your income are deductible. This is known as income protection of continuing salary cover,” the ATO says.1

While income protection premiums are tax-deductible, you can’t claim deductions for term life insurance premiums, trauma insurance premiums or critical care cover premiums.

Premiums taken out through your super fund’s income protection policy are also not tax-deductible. According to the ATO:

“You cannot claim a deduction for a premium where the policy is taken out through your superannuation fund and the premiums are deducted from your superannuation contributions.”

You can read more about income protection and tax here. You can also visit the ATO or consult a tax professional for more information on how tax works on income protection and life insurance.

Why should you get income protection insurance?

Income protection insurance is designed to give you peace of mind, as it can provide you with a portion of your income if you suddenly find yourself out of work for reasons outside your control.

It can be particularly important for the following types of people:

  • Self-employed people, who may not have any sick or annual leave and won’t be able to run their business if they become injured or sick
  • People with mortgages or large debts they wouldn’t be able to service
  • People with children or dependents they need to provide for.

Compare income protection policies with Compare the Market today.

How do you compare income protection policies?

When comparing income protection policies, there is a lot to factor in. Some of these important considerations include:

  • Maximum monthly benefits(how much you receive from your insurer each month)
  • Maximum benefit periods(the length of time you’ll be able to claim your benefits)
  • Exclusions(income protection claims may be rejected based on the exclusions listed in your policy, such as being under the influence of alcohol or drugs).
  • Extra benefits included in the policy (e.g. death benefits, partial disability benefits, spouse or child benefits etc.)
  • The maximum percentage of income cover (some might cover more of your income than others).

We can help you search for a policy by comparing income protection policies from some of Australia’s largest income protection brands.

Note: The information provided here is general only and does not consider your personal objectives, financial situation or needs. Before you decide to purchase a product, it is important to read the relevant Product Disclosure Statement (PDS).

Sources

1 AustralianTaxation Office, Income Protection Insurance. Accessed 4 November 2021.
2 AustralianSecurities and Investments Commission, Insurance Through Super. Accessed 4 November 2021.

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