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?

No, income protection is made to supplement your income when you can’t work due to an accident or sudden illness. As such, it won’t pay out if you lose your job due to resignation, redundancy or being fired.

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 12 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 if you need to make any claims while your income protection is suspended.

If you 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 Total Permanent Disability at once?

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

You can claim on income protection in the event of a sickness, 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, up to 70% of your income.

The criteria for claiming on TPD is that you’ll need to be permanently disabled or incapacitated through an injury or sickness. 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, a TPD payout generally won’t cancel out your income protection claim.

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 pay out 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, known as your benefit period. 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 also come to an end if you recover and are able to work.

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

A waiting period also applies to income protection, and cover is only provided (where otherwise eligible) for periods you’re unable to work due to sickness or injury after you’ve served this waiting 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 help you decide your insurance needs to maintain your lifestyle if something unfortunate were to happen.

What is group income protection insurance?

Group income protection is taken out by employers on behalf of their employees. Most commonly, group income protection insurance is taken out by a superannuation trustee to protect its members.

Depending on the policy terms, a group income protection policy may cover the following:

  • Up to 70% income replacement if the employee cannot work due to sickness or injury
  • Super contributions of up to 11%
  • 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 also generally subject to a waiting period, which is the amount of time the claimant will have to wait to begin accruing a benefit after becoming injured or ill. Typically, for group income protection, waiting periods range anywhere from a couple of weeks to a few months but can be longer.

How much does my income protection pay?

Income protection insurers will typically pay out up to 70% of your pre-disablement income. Although, some may pay out a higher percentage at the start of your benefit period, and a lower percentage later. Income protection policies may also cover your super contributions (additional 11%), depending on the policy.

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, until you reach a certain age or your claimable sum is paid out. However, to continue receiving income protection payments, you may need to provide ongoing proof of your sickness 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 a specific period, which in addition with your income protection benefit exceeds 70% of your income.

Always check your Product Disclosure Statement (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 sickness  or injury. Generally, you can cover up to 70% 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. Income protection payments don’t accrue unless you’re unable to work for a period longer than the waiting period (no cover is provided for sickness or injury within the waiting period).

A great way to protect your livelihood is by comparing income protection, free of charge to you, from a number of providers on Compare the Market.

How much it costs

How much does income protection cost?

How much income protection costs will depend on your individual circumstances, as well as the specifics of your type of policy. Some common influencing factors can be:

  • Benefit amount. Income protection usually covers up to 70% of your earnings; the higher your benefit amount, the more expensive your premium will be.
  • 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 five years, instead of two 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 70% of your income, and potentially 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 income protection be held in super?

Yes, most superannuation funds will offer accountholders 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 depends on the amount of cover (whether it falls within the tax-free threshold) and the marginal tax rates that apply.

In some cases, such as if your cover is held through superannuation, PAYG tax may be withheld for you. So, although you’ll 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 (to the extent the premium relates to replacing income) 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 separate policy outside your super, generally the costs are deductible.

Also, if you have a bundled policy which both includes income protection and a life insurance product (e.g. life, TPD or trauma insurance), 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 as of June 2023. 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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