Is Income Protection Insurance Right for You?
Income protection insurance is designed to replace part of your income if illness or injury prevents you from working. Understanding what it covers, how claims work at a high level, and how policies can be structured will help you decide whether it's appropriate for your situation.
This guide explains the essentials and points you to deeper detail where it matters.
What Is Income Protection Insurance?
Income Protection Insurance can replace up to 70% of your regular income if illness or injury stops you from working - helping you safeguard your lifestyle, support your family, and stay financially secure.
In simple terms, income protection:
- Provides a monthly benefit if you're unable to work due to illness or injury.
- Helps cover essential living costs such as rent or mortgage, bills, and groceries while you recover.
- Is based on your pre-disability income.
- Is paid for the duration of your disability, up to your chosen benefit period (e.g. 2 years, 5 years, or to age 65/70).
❌ What Income Protection Doesn't Cover
Most policies exclude cover for:
- Redundancy or job loss unrelated to illness or injury
- Self-inflicted injuries
- Unemployment due to deregistration or disqualification
- Disabilities caused by war
- Undisclosed pre-existing medical conditions
- Pregnancy, childbirth or miscarriage (unless complications)
- Injuries during criminal activity or incarceration
- Elective or cosmetic surgery in first 6 months
👉 Learn more at our Income Protection Coverage Deep Dive: What Income Protection Covers (and Doesn't)
👉 Additional eligibility rules apply for policies in super. Learn more: Income Protection and Super
When Does Income Protection Pay Out?
Total Disability
You're considered totally disabled if, solely due to illness or injury, you meet all of the following criteria:
- You're not working at all (paid or unpaid) and have no capacity to work
- You're following the advice and treatment plan of a qualified medical practitioner
- You're unable to perform all the key duties required in your own occupation
Partial Disability
You may be eligible for a partial disability benefit if you:
- You are working, but only up to 80% of your regular hours
- Have post-disability income that's lower than your pre-disability income
- Are under the ongoing care of a medical practitioner
Note 1: If your income protection policy is owned inside superannuation, you must also satisfy the SIS definition of “Temporary Incapacity” to receive payments. See Income Protection and Super
Note 2: Some policies will switch to an “any occupation” definition after 2 years on claim - especially for longer benefit periods (e.g. to age 65). With Own Occupation you are considered disabled if you can't perform your specific job. With an Any Occupation definition, you must be unable to work in any job suited to your education, experience, or training. See Income Protection - Any vs Own Occupation
👉 Learn more about when Income Protection pays out: The Income Protection Claims Process
What's Included in a Retail Income Protection Policy?
Retail income protection policies (those sold by Financial Advisers and here at Keep Insurance Co) include standard cover for total and partial disability, and usually include additional features and optional enhancements to tailor cover to your income, career stage, and long-term needs.
The exact features available depend on the insurer and how your policy is structured. But there are some common options.
🔧 Common Optional Enhancements
- Benefit indexation: allows your insured monthly benefit to increase over time to help keep pace with inflation.
- Super contribution options: may provide additional payments into super while you're on claim, helping reduce long-term retirement impacts.
- Claims escalation: can increase benefit payments during long claims to help preserve purchasing power.
These enhancements are optional and generally increase premiums.
✅ Commonly Included Policy Features
- Waiver of premium: premiums are usually paused while benefits are being paid.
- Future increase options: allow cover to rise with income growth, often without additional medical underwriting.
- Relapse protection: may allow a claim to resume without restarting the waiting period if the same condition returns.
- Rehabilitation support: many policies include benefits designed to assist recovery and return to work (availability can differ inside vs outside super).
Income protection isn't a one-size-fits-all product. The features and optional extras you choose can significantly affect how benefits respond during a claim and how well your cover keeps pace with changes in income and living costs.
Income Protection vs TPD Insurance
While Income Protection and Total & Permanent Disability (TPD) insurance are related, they're designed for very different financial needs.
Income Protection replaces a portion of your income if illness or injury stops you from working. Payments are monthly and can begin well before a condition becomes permanent.
TPD insurance pays a one-off lump sum if you're permanently unable to ever return to work, helping with long-term financial impacts like debts or care costs.
Many people choose to hold both types of cover, as they complement each other - one supports ongoing income, the other provides long-term financial security.
Income Protection claims are often easier and faster to make, as eligibility is based on reduced income rather than permanent incapacity.
Income Protection vs Life Insurance
Income Protection and Life Insurance are often considered together, but they protect against very different financial risks.
Income Protection
Replaces a portion of your income if illness or injury prevents you from working. Benefits are paid monthly while you're alive and recovering, helping cover everyday expenses such as mortgage repayments, household bills, and education costs.
Life Insurance
Pays a lump sum if you pass away or are diagnosed with a terminal illness. It's designed to provide financial security for your family or dependants, helping them manage debts and future living costs.
In simple terms:
- Income Protection supports you while you're alive but unable to work
- Life Insurance supports your loved ones if you die
- One protects ongoing income, the other protects long-term financial security
Because they address different risks, Income Protection and Life Insurance are not substitutes for one another. Many people hold both as part of a broader protection strategy.
Income Protection vs Trauma Insurance
Income Protection and Trauma (Critical Illness) insurance both provide financial support when serious health issues arise - but they're designed to solve very different financial problems.
Income Protection
Designed to replace part of your ongoing income if illness or injury prevents you from working. Benefits are paid monthly while you're unable to earn, helping cover everyday living costs such as mortgage repayments, bills, and household expenses.
Trauma (Critical Illness) Insurance
Pays a one-off lump sum if you're diagnosed with a specific serious medical condition listed in the policy, such as cancer, heart attack, or stroke. The payment isn't linked to work status and can be used for treatment, recovery, debt reduction, or lifestyle adjustments.
In simple terms:
- Income Protection is triggered by loss of income
- Trauma Insurance is triggered by diagnosis
- One supports ongoing cash flow, the other provides immediate financial flexibility
Trauma insurance only applies to defined medical conditions, so it won't respond to many illnesses or injuries that can still prevent you from working. Likewise, income protection only pays if your condition actually impacts your ability to earn.
For this reason, many people choose to hold both - using trauma insurance to manage upfront or one-off costs, and income protection to support them financially during recovery or extended time off work.
Is Income Protection Insurance Worth It?
For many Australians, income protection insurance is one of the most practical and valuable forms of life insurance - especially for those who rely on their income to meet day-to-day living costs, support family, or repay debt.
But is it worth the premium? Let's break it down.
Cost vs Benefit Breakdown
The cost of income protection depends on factors like your age, occupation, income, waiting period, and benefit period - but premiums are often surprisingly affordable compared to the potential payout.
| Scenario | Monthly Premium | Potential Monthly Benefit | Annual Benefit Value |
|---|---|---|---|
| 35-year-old, earns $100,000 | ~$70/month | $5,800/month (70%) | $69,600/year |
📝 Notes
- A policy like this could protect your cash flow and lifestyle if you're off work for months - or even years.
- Premiums are often tax-deductible when held outside of super.
Checklist: Is It Worth It for You?
Income protection may be worth it if:
- ✅You rely on your income to pay rent/mortgage, bills, or school fees
- ✅You're self-employed, a contractor, or don't have much sick leave
- ✅Your household would struggle financially without your income
- ✅You want long-term peace of mind without relying on Centrelink
- ✅You have a strong desire to remain independent without the need to rely on family or friends
- ✅You have debt or financial dependants
It may be less relevant if:
- 🚫You're financially independent or close to retirement
- 🚫You have substantial passive income or investments
- 🚫You're covered by a generous employer-provided scheme
- 🚫You have close friends or family who can support you
What if I Have Sick Leave or Savings?
Having sick leave or a cash buffer is a great start - but it's rarely a complete solution.
| Solution | How Long It Lasts | What Happens Next |
|---|---|---|
| Sick Leave | Usually 2-4 weeks | Runs out quickly for longer-term illness |
| Emergency Savings | Varies | Can be depleted fast, especially with ongoing costs |
| Income Protection | Ongoing, for a fixed benefit period (eg. 2 or 5 years) or until you reach a specified age (such as age 65) | Provides reliable monthly income until recovery or retirement |
How Income Protection Works & How to Choose Cover
Income protection isn't a one-size-fits-all product. The way your policy is structured affects cost, flexibility, and how it responds at claim time. This section highlights the key decisions - with links to deeper detail where it matters.
🧭 The Key Decisions You'll Make
- How soon payments start (your waiting period)
- How long benefits can be paid (your benefit period)
- How much income you insure
- Whether premiums are paid personally or via super
- Which insurer and policy features best match your work and income
⏳ Waiting Period
The waiting period determines how long you wait after becoming unable to work before payments begin. Shorter waiting periods cost more, but reduce reliance on savings or sick leave.
👉 Waiting periods explained📅 Benefit Period
The benefit period sets the maximum length of time payments can continue if you're unable to work - from short-term cover to long-term protection.
👉 Benefit periods explained🧮 Monthly Benefit
Income protection usually covers a percentage of your income. The actual amount payable is assessed at claim time and may differ from the amount shown on your policy schedule.
👉 How benefits are calculated🏦 Paying Through Super
Holding income protection inside super can improve cash flow, but introduces additional rules around eligibility and payment at claim time.
👉 Income protection and superChoosing an Income Protection Policy
While all Australian income protection insurers are regulated, policies differ meaningfully in definitions, features, and claim flexibility. Choosing the right policy is about matching cover to your income, occupation, and risk profile - not just price.
Applying for Income Protection
Applying is mostly about eligibility and underwriting - insurers check your work status, income, occupation, and health history.
What happens when you apply
- ✅Confirm eligibility (age, hours, occupation)
- ✅Complete an application (health, lifestyle, income)
- ✅Insurer may request extra evidence
- ✅Receive terms: standard, loading, exclusion, or limits
Mental health: common question
Mental health can be covered under retail income protection, but outcomes can vary depending on history and recency.
Want a personalised estimate? Try this quick calculator.
💰 Tax & Super Considerations
How your income protection policy is structured - inside or outside super - affects tax deductions, cash flow, and how benefits are paid if you need to claim.
- 💡 Premiums are often tax deductible when paid personally - but it depends on ownership
- 💡 Benefits are generally taxed as income regardless of ownership
- 💡 Inside-super ownership may improve cash flow but adds extra rules at claim time
These topics are explained in detail on our dedicated guides:
Claiming on Income Protection Insurance
Income protection claims are designed to replace lost income when illness or injury prevents you from working. Understanding how the process works - and what can affect payments - helps avoid surprises at claim time.
- Claims are assessed using medical evidence, income history, and your policy definitions - not just the benefit shown on your schedule.
- Waiting periods must usually be completed before payments begin, and ongoing proof may be required during longer claims.
- Other income or compensation received during a claim can reduce (offset) your monthly benefit.
Important: A lower payment or adjustment doesn't mean a claim has failed - it usually reflects policy rules around income calculation or offsets.
For full detail - including timelines, documentation, payment calculations, and common misunderstandings - see our dedicated guides: