What is Income Protection Insurance?
16 Jan 2026 • Products
Income Protection Insurance is a financial safety net that protects your most important asset, your ability to earn an income. It replaces a portion of your income if you're unable to work due to illness or injury. Most policies cover up to 70% of your pre-tax income, although you can choose a lower value. This helps you stay on top of essential financial commitments, such as mortgage payments and everyday living expenses, even when you can't work.
Looking for more detailed guidance to help you choose the right income protection cover:
What Does Income Protection Insurance Cover?
Income Protection Insurance typically covers:
Illness and Injury:
Policies cover a wide range of health issues that might prevent you from working. Most plans will cover both partial and total disabilities, with partial claims usually paying out a lower benefit amount.
Waiting and Benefit Period:
Claims are paid after your waiting period selected by you, which ranges from 14 days to 2 years. The claim last for the total of the benefit period, again selected by you and ranges from 2 years to age 70.
Included Benefits:
Coverage will often include rehabilitation, premium waivers while on claim, and a small payout in the event of death. Less common features include elective surgery cover or bed confinement benefit, which pays a portion of your benefit if you are bedridden for at least 72 hours during your waiting period.
Optional Extras:
Widely available extras are super contribution, which continues to add to your super while you are on claim, and increasing claims benefit, which indexes your claim payment annually to keep up with the cost of living.
It's important to review your policy's terms and exclusions, as each insurer offers different benefits.
How Much Does Income Protection Insurance Cost?
"The cost of income protection insurance in Australia depends on several factors like your age, occupation, and coverage amount. If you're looking for the best income protection policy, balancing waiting and benefit periods can help control costs.
- Age: Premiums tend to increase as you get older.
- Occupation: Riskier jobs often come with higher premiums.
- Coverage Amount: The more income you insure, the higher your premium.
- Benefit Period: Longer benefit periods, such as up to age 65 or 70, will increase your premium.
- Waiting Period: A longer waiting period before you start receiving payments can reduce your premium.
Most policies give you the option of Variable Age-Stepped premiums, which increase each year with age, or Variable premiums, which largely remain fixed but start higher.
Case Study: Bill's Income Protection Insurance
Bill's Profile
Bill is 35 years old and works as a marketing manager, earning $90,000 per year. He's aware of the risks associated with illness or injury and wants to protect his income in case he can't work. He decides to take out Income Protection Insurance.
Bill's Income Protection Policy
- Coverage: Stepped cover policy providing 70% of his income ($5,250 per month).
- Waiting Period: 2 months before payments start.
- Benefit Period: 2 years of payments if unable to work.
The monthly cost of Bill's Income Protection Policy is between $40 and $50 per month, providing peace of mind at a manageable cost.
Bill is in good health, but he understands that accidents or illnesses can happen unexpectedly. By opting for a 2-month waiting period and a 2-year benefit period, he balances his needs with an affordable premium. As his premiums are stepped, they will increase slightly as he gets older, but the lower starting cost fits within his current budget.
Want to calculate your own coverage? Use our Life Insurance Calculator Tool.
Income Protection and Tax
Income Protection Insurance premiums are usually tax-deductible when paid from your cash flow, which can help lower your taxable income. However, any benefits you receive from the policy are treated as taxable income. It's a good idea to speak with a tax advisor to understand how this applies to your specific situation.
Is Income Protection Worth It?
- Self-Employed Individuals: Provides crucial financial protection without employer-paid sick leave.
- Families with Dependents: Ensures financial security for your family if you can't work.
- People with Financial Obligations: Helps cover debts like mortgages if you're unable to work.
- Peace of Mind: Allows you to focus on recovery without worrying about financial commitments.
When choosing a policy, consider optional extras, waiting periods, and benefit limits. Review the Product Disclosure Statement (PDS) to make an informed decision.