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What is income protection insurance?
Income protection pays a monthly wage if you need to take time off work due to a sudden accident or illness. Most insurers will pay up to 70% of your pre-tax income. They'll also set a maximum benefit, usually around $10,000 monthly.
The payouts from income protection can help you meet regular expenses, such as your mortgage or rent and groceries. It can also maintain your family's lifestyle while you focus on your recovery.
How does income protection insurance work?
With income protection, you get an ongoing cash benefit after a successful claim. It lasts until one of the following occurs:
You can return to work
Your benefit period ends
You reach an age when you can no longer renew your policy
The benefit period is the maximum amount of time you can receive payments. In most cases, this is for 1, 2 or 5 years. Some insurers offer a benefit period until the age of 65. These policies will cost more.
You can only claim income protection after you've passed the waiting period stated in your policy. It starts from the day you file your claim and it can be 14, 28, 60 or 90 days.
Tip: The longer your waiting period, the cheaper your policy will be. However, choose with care as you'll need to have enough money to support yourself for the duration of your waiting period.
Expiry age. This is the age at which you will no longer be able to renew your policy. Most insurers set this as 65 years of age.
Partial disability benefit cover. This add-on lets you claim a portion of your insurance benefit if you can return to work at a reduced capacity – for example, on a part-time basis. You can be paid this until you return to work fully (or your benefit period ends).
Premium pause. Some policies let you stop paying your premiums – for up to 12 months – if you take extended leave. This could be for parental leave, compassionate leave or full-time study.
Stepped or level premiums. You may be able to choose between stepped and level premiums. A stepped premium starts off cheaper but increases over time. A level premium starts out more expensive than stepped but won't go up over time.
Pros and cons of income protection
Weighing up the pros and cons of income protection is a helpful way of working out if it's right for you. Take a look below.
Pros
Peace of mind. Money is one of the major causes of stress in life. Income protection can't guarantee all your money worries will go away, but it can take care of one of our biggest concerns: what happens if I can't work? It lets you focus on getting better, not how you'll pay your next bill.
Short-term help that stops long-term problems. Income protection is for those scary times when you're temporarily unable to work. It's short-term financial help that ensures your money worries don't become a long-term problem. If you can rely on income protection, you don't need to worry about alternative ways of paying your bills, like selling your car, picking up a second job when you can return to work, or relying on high-interest loans.
Easy to claim. You don't need to prove permanent disability to work; just that you're temporarily unable to perform your duties.
Good for small business owners. If you run your own business, income protection insurance is very helpful security if an illness or injury strikes and stops you from working.
Cons
Can be trickier if you have a pre-existing medical condition. Sometimes it can cost you more if you have a pre-existing medical condition and in some cases you won't be covered if you need to take time off due to that.
More expensive for different occupations. You'll likely have to pay a little more if you work in a high-risk job where injuries are more likely to occur.
Waiting periods. Income protection policies generally have a waiting period - usually around 30 - 90 days - before it begins to pay you, so you may have to fall back on sick pay until the waiting period is over.
While it's counterintuitive, you'll want to consider insurance when you're in tip-top shape. This is absolutely a worthwhile investment of your time and helps provide a safety net... lock it in early to get better terms if you can. If you wait and get your cover at a later date, you might find the specific condition you've since had is excluded from your policy.
No one is ever really prepared for life's harsh surprises, but the right income protection insurance can help soften the blow during a tough time for your family: financially, emotionally and physically while you're on a claim.
There's a lot more to finding the right cover than simply looking for the cheapest deal. Ultimately, you get what you pay for with income protection. In my view, policies held in super are rarely worth it in the long run. Going directly to an insurer or a broker is the pathway to a more comprehensive policy.
If the brand you're looking for isn't here, check out our directory.
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Frequently asked questions
Australian residents over the age of 18 can apply for income protection insurance. Most insurers stop offering new policies to people once they reach 60 years old.
You will also have to meet minimum work requirements before you are approved. Typically, this is 20 hours a week, but it varies between different insurers.
Income protection insurance is designed as a temporary replacement for your salary, so you can spend it however you like. Remember, you'll have a little bit less to work with because income protection will never cover more than 85% of your wage, but it can still help with the following:
Your rent or mortgage
Medical expenses related to your illness or injury
Regular bills including utilities, school fees and home insurance
Credit card bills, car loans and other debts
Daily living expenses, including groceries and household goods
Yes, you can find income protection insurance if you're self-employed in order to guard against an accident or illness. But policies are now set up with indemnity value. This means an insurer will base the payout on what you earned in the months leading up to your claim. So, if you have a fluctuating income, then there's a risk you may get a less generous payout.
You can have an income protection policy through your super, as well as through a standalone policy. To see what (if any) insurance you have inside your super, call your super fund and inquire with them. They can inform you of the steps you need to take if you choose to amend or cancel your cover.
Good to know: Income protection is often far more basic within super accounts, so you may well find better terms and more tailored insurance by going direct with an insurer.
Yes. Insurers typically offer income protection to people who work at least 20 hours a week and have been in the same role for 12 months.
If your pregnancy is comparatively straightforward, you won't be able to claim on your income protection insurance. However, if it poses a serious and prolonged health risk, you may be able to make a claim in some circumstances.
Often, yes. The Australian Taxation Office (ATO) has confirmed that you can claim the cost of insurance premiums if they protect against loss of income.
Also, income protection premiums can't be claimed on insurance held through your super fund (where premiums are deducted from your super contributions).
Keep in mind only premium payments are tax deductible; any payouts from an insurer aren't. Any benefits you receive must be included on your tax return.
Finder research has shown that cheap income protection can start from just $23.10* per month. We looked at 14 brands and found an average monthly premium of $41.95 for a 20-year-old male with a salary of $50,000.
Keep in mind that the cheapest income protection policy may not be one that gives enough cover for your needs.
*These figures were for a 20-year-old male earning a yearly income of $50,000. Correct as of January 2021.
A waiting period is the amount of time you'll need to wait before you can make a claim on your income protection policy. This period is usually 14, 28, 60 or 90 days. If you have the option to increase your waiting period, this can help lower the cost of your premiums. But you won't be insured for this time, so it's risky.
Yes, income protection pays up to a percentage of your pre-tax (gross) income. It's set up to replace the income from your annual earnings over the 12 months before your illness or injury.
No, income protection insurance doesn't cover you losing your job. However, you can opt for alternative products to support you, your family and your lifestyle if you were to lose your job such as mortgage protection insurance.
It depends on the maximum benefit period and how long your recovery takes. Generally, income protection policies are up to 2 or 5 years. But the likes of NobleOak and Aspect could offer you far longer protection.
This article was updated on 30 August 2023. We updated the frequently asked questions.
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To make sure you get accurate and helpful information, this guide has been edited by David Gregory as part of our fact-checking process.
Gary Ross Hunter was an editor at Finder, specialising in insurance. He’s been writing about life, travel, home, car, pet and health insurance for over 6 years and regularly appears as an insurance expert in publications including The Sydney Morning Herald, The Guardian and news.com.au. Gary holds a Kaplan Tier 2 General Advice General Insurance certification which meets the requirements of ASIC Regulatory Guide 146 (RG146). See full bio
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Gary Ross has written 699 Finder guides across topics including:
Income protection provides you with income replacement for sickness and illness but not for pregnancy. However, it does offer features to help you out during pregnancy.
NobleOak has been offering personal insurance solutions direct to Australians for over 137 years. Discover the benefits and features available on the NobleOak Income Protection policy and make a secure enquiry for cover.
Compare income protection policies available from OnePath and receive a secure quote from an insurance consultant. Find out how OnePath compares to other insurers.
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