Income Protection FAQs

Answers when you need them

Income protection insurance is one of those products that seems simple, but can be difficult to understand. How much will it cost? Is it included in your superannuation? We provide the answers to your questions and more, so you can make the right decision about income protection.

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Income Protection Frequently Asked Questions

Am I covered if...?

Does income protection cover loss of job or redundancy?

Some income protection policies can cover involuntary redundancy. However, even if redundancy is covered, income protection typically won’t cover being fired, let go during probation, resigning voluntarily, or knowing of upcoming redundancies (within 6 months) generally. Also, getting cover for redundancy may be subject to working more than a certain number of hours per week (usually over 30 hours).

There are a couple of other options to support people with income protection who are made redundant:

  • Premium waiver: Some life insurance companies will waive life insurance premiums for a number of months (usually up to 3 months) if you are temporarily unemployed, however, this could have a condition that you show evidence of seeking alternative employment. Depending on the insurer, you may also be able to suspend or pause your policy (and therefore premiums) for up to twelve months, however, in most cases, no benefit will be paid during this time.
  • Unemployment/redundancy benefit: Banks might offer some form of redundancy cover or mortgage repayment insurance (as an optional paid extra), or might make you take out redundancy cover if you have a mortgage or loan with them. However, these benefits will usually go directly towards covering mortgage payments or minimum loan repayments up to a certain amount per month, and may only be paid for a number of months or until the loan is paid off, you become employed again or the policy ends. This benefit may not be offered if you’re already receiving benefits from an income protection policy (TPD, terminal illness, trauma) or if you’re unemployed because of poor job performance, voluntary redundancy, seasonal employment, contract ending or completion of a project; always check the terms of your policy.

Refer to your Product Disclosure Statement (PDS) to understand if your policy covers you for redundancy or, if not, what other benefits you may be able to access if you become involuntarily unemployed. Learn more about redundancy cover.

How it works

Can I suspend my income protection?

You may be able to suspend your income protection for a period of time (usually a maximum of twelve months), however, this will depend on your insurer and policy, and possibly even your personal and financial circumstances.

You won’t have to pay premiums if you do suspend your policy, but in most cases, you also won’t be covered for any claims if you do get injured or become ill while your income protection is suspended.

If you do have income protection cover, refer to your product disclosure statement (PDS) for information about whether you can suspend your policy. Or, if you’re ready to un-pause your cover, why not compare income protection policies to make sure you’re on a good deal?

Can I claim on both my income protection and TPD at once?

Yes, you may be entitled to claim income protection and TPD (Total and Permanent Disability) insurance at the same time. However, this will depend on the terms and conditions of your policy, as the claim criteria for each can be very different.

You can claim on income protection in the event of an illness, injury or partial disability that prevents you from working (either temporarily or permanently); the purpose of your income protection is to provide a regular source of income to cover your everyday living expenses.

The criteria for claiming on TPD is that you’ll need to be permanently disabled or incapacitated through an injury or illness (and unlikely to ever be able to work again); the purpose of your TPD benefit is to provide a lump sum payout to cover major expenses that occur from your permanent disability.

Because they both serve different purposes, the payout of TPD generally won’t cancel out your income protection claim. However, in certain cases, the insurer may decide to stop paying the claim for regular income protection, and instead agree to pay a lump sum amount.

Refer to your Product Disclosure Statement (PDS) to determine if you can claim income protection and TPD at the same time.

How long does income protection payout for?

The length of time your income protection policy will pay out for will depend on the term you’ve selected and agreed upon in your application or the term that is stated in your policy. It will also depend on how long you remain unable to work and whether you meet the claim conditions.

Your benefit period (how long your income protection pays out for) may last for a number of months, a few years, until a certain age (e.g. until you turn 65), or until your claimable sum is paid out; your benefit period will come to an end if you recover and are able to work.

For any income protection claim, you will need to provide ongoing medical proof of your injury or illness to keep receiving payouts throughout the benefit period.

Refer to your Product Disclosure Statement (PDS) to find out how long your income protection will payout for. Read more about how income protection payouts work, or easily compare income protection policies in minutes to make sure you can maintain your lifestyle if something unfortunate were to happen.

What is group income protection insurance?

Group income protection is taken out by employers so they don’t have to pay salaries to injured or sick employees who can’t work for a period of time. Most commonly, group income protection insurance is taken out by a superannuation trustee to protect its members.

A group income protection policy may cover the following:

  • Up to 75% income replacement if the employee cannot work due to illness or injury
  • Super contributions of up to 10%
  • Rehabilitation, home care or return to work assistance (optional extras)

Benefit periods will often extend over a few years, and benefits are usually paid monthly until the employee returns to work or the policy runs out. Group income protection insurance is generally subject to waiting periods, which is the amount of time the claimant will have to wait to begin accruing a benefit after becoming injured or ill. Waiting periods usually range anywhere from a couple of weeks to a few months.

How much does my income protection pay?

How much your income protection pays out will depend on how much you are insured for, and what type of policy you have taken out. There are two types of income protection policies:

  • Agreed value: covers an agreed-upon amount, up to 75% of what your income is at the time of application*.
  • Indemnity value: covers up to 75% of what your income is at the time of your claim, up to your insured amount*.

* Proof of income (financial statements) is required to support claimable sum. Agreed value policies will require proof of income at the time of applying for cover, while indemnity value will require proof of your income at the time of submitting a claim.

Income protection policies may also cover your super contributions (additional 10%).

Income protection benefits accrue after the waiting period ends (the length of time you’ve agreed to wait until your benefit begins to accrue), after which you’re paid fortnightly or monthly in arrears, for a period of time or until you reach a certain age. However, to continue receiving income protection payments, you will need to provide ongoing proof of your illness or injury to your insurer.

Learn more about the process of how income protection payouts work.

Are there any exclusions when claiming income protection?

Income protection policies usually have standard exclusions like not covering claims related to intentional or self-inflicted injury, war, pregnancy and childbirth (and sometimes even elective or organ transplant surgery).

Also, your income protection payments could be further reduced if adjustments apply. For example, if you receive other income payments from another insurance policy, workers compensation, legal payouts, or sick leave greater than 60 days, which in addition with your income protection benefit exceeds 75% of your income.

Always check your PDS to make sure you understand what's covered and not covered, and what can affect your income protection.

How does income protection work?

Income protection works by replacing part of your income if you cannot work due to illness or injury. Generally you can cover up to 75% of your income, although it may be limited to a maximum monthly benefit amount. Depending on your policy, you could be covered for a period of months or years, or up until you reach a certain age.

It’s always safer to protect your livelihood, and a great way to do that is by comparing income protection for free from a number of providers on Compare the Market. If you’re still unsure about whether or not you need it, here are 8 reasons you should consider income protection.

How much it costs

How much does income protection cost?

How much income protection costs will depend on your individual circumstances:

  • Benefit amount: Income protection usually covers up to 75% of your earnings; the higher your benefit amount, the more expensive your premium will be.
  • Policy type: An agreed value policy is generally more expensive than an indemnity value policy if you’re being covered for the same benefit amount. This is because an agreed value policy guarantees cover for your income amount at the time of application, whereas an indemnity policy is based on your income at the time of your illness or injury, and your income could fluctuate.
  • Waiting period: Having a longer waiting period before you’re able to make a claim will generally provide a cheaper premium; waiting periods usually range from a couple of weeks to a few months.
  • Benefit period: Your premium will become more expensive if you have a longer benefit period (i.e. if you’re paid out over a period of 5 years, instead of 2 years).
  • Personal and lifestyle details: Your age, gender, occupation, current health conditions, smoker status, hobbies and lifestyle may determine how risky your income is to insure.

Basic income protection policies may be affordable for many Australians. The easiest way to see how much income protection might cost you is to compare income protection in minutes from a range of providers on Compare the Market.

Income protection & superannuation

How does income protection work with superannuation?

Income protection works by covering up to 75% of your income, as well as an additional 10% of your superannuation contribution payments if you become seriously sick or ill and cannot work. It will pay a benefit for a set period, as outlined in your policy – whether that be a number of months or years, or until you turn a particular age.

Income protection can be included in your superannuation policy; in this case, your premiums will be deducted from your superannuation balance.

There are different benefits of getting income protection through your super or as a separate product. So, it’s worthwhile comparing income protection policies so that you can make an informed decision about the covers that are available and what is best for your situation.

Can I have agreed value income protection as part of my superannuation?

You may be able to have agreed value income protection as part of your superannuation. Although, these policies are only available through super funds that offer flexi-linking, while other super funds will only offer you an ‘indemnity’ policy (which is based on up to 75% of what your income is at the time of making a claim).

Also, an income protection policy that’s part of your superannuation may be subject to exclusions and conditions, and may also be affected by "cashing restrictions", which only allow you to take eligible payments as an income stream, not a lump sum.

Also, your claim may be subject to meeting certain conditions. For example, if you are claiming for ‘temporary incapacity’ you may receive your allowable benefit, and any extra amount or preserved benefits could remain in your super until you’ve met the required condition (e.g. the rest may only become available after you’ve turned a certain age and have retired).

Can income protection be held in super?

Yes, most superannuation funds will offer account-holders an option to have some level of income protection included in their super, although it may be at an additional expense.

If you do hold income protection in your super, your premiums will be deducted from your superannuation balance, as opposed to income protection outside of super which is paid directly by you.

Also, income protection through super may be subject to limits and exclusions, as there are restrictions on the types of cover that can be held in superannuation.

Always be aware of the benefits and differences between income protection policies, both inside or outside of super, and compare them to make sure you’re getting adequate cover.

Income protection & tax

Do I pay tax on income protection payments?

Yes, you may pay tax on your payments from an income protection claim, as these payment benefits have replaced lost income, but it is dependent on the amount of cover (whether it falls within the tax-free threshold) and marginal tax rates applied.

In some cases, such as if your cover is held through superannuation, PAYG tax may be withheld for you. So, although you will still need to declare the payments as income, you may not end up with a further tax bill when you get your notice of assessment. If you receive an income protection payment, make sure you understand whether tax has been withheld or not, and ensure you plan ahead for any tax liability.

Before you lodge your tax return for the year, find out more about whether your income protection is tax deductible.

Can I claim income protection premiums as a tax deduction?

Generally, you may be able to deduct your income protection premiums when you lodge your yearly tax return.

The Australian Taxation Office (ATO) allows you to deduct the costs of your income protection premiums you’ve paid during the financial year, to which the tax return you’re completing relates, but only for policies taken out separate to your Superannuation.

So, if you have income protection as part of your super package, the premium is not tax deductible. If your insurance is a policy outside of your Super, the costs are deductible.

Also, if you have a bundled policy which both includes income protection and a life insurance product (Life, TPD or Trauma), you can generally only deduct the premiums related to the income protection portion.

Find out more about income protection and your tax before you lodge your next return.

We do not give or purport to give any taxation or legal advice. The information provided here in respect of tax and superannuation is given in good faith and is believed to be accurate and reliable at June 2019, however it is provided for information purposes only and we are not liable for any losses that may occur from relying on this information. You should always seek professional advice before making any decisions about tax or superannuation.

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