Is income protection worth it?

What does income protection offer me?

Income protection is an insurance policy you can take out that will pay you part of your income if you're unable to work because of getting sick or injured. Generally, income protection can pay out:

• Up to 90% of your income for the first 6 months after you stop working
• Up to 70% of you income after the first 6 months are over, up to your elected benefit period

Every fund offers different benefits and definitions of full and partial disability, which will affect what you can claim. Be sure to read the Product Disclosure Statement (PDS) carefully.

Finder survey: How many Australians have income protection insurance?

When income protection is worth it

Put simply, if you would be in financial stress if you stopped earning your income today, you could probably benefit from income protection. This will be more likely if you have dependencies, debts, or if you rely on a single income. Here are a few examples:

• You have rent or mortgage repayments you couldn't cover without your salary
• You have a spouse, children or other dependants that rely on your salary
• You don't have enough savings to cover more than a few weeks of your regular expenses
• You're a sole trader or casual worker, without access to leave or paid time off
• You want the security of not having to rush going back to work if you're sick or injured

When income protection might not be worth it

There are few times when you might not need income protection.

No expenses of dependencies: If you have low or no expenses, dependencies or debts, you might not need income protection insurance.

Close to retirement: If you've only few more years in the workforce and have enough savings, your response to sickness or injury might just be to retire early.

Low salary: Income protection is most useful to people earning a lot. If you're on a low salary, you might not benefit from income protection. You could look at Total & Permanent Disability insurance instead, whichpays out if you become permanently unable to work, regardless of earnings.

These aren't the only groups who might not need income protection, and you may still benefit if you fall into one of these categories. You should speak to a licensed financial planner before making any a decision.

How much savings do you need to not need income protection?

Unfortunately, Finder research finds most Australians have far less than 3 month's earnings in their savings. According to Finder's Consumer Sentiment Tracker data from July 2023, around 60% of Aussies have less than 3 months of savings. The full data is in the chart below.

Compare policies from Australian income protection brands

Finder Score - Income Protection

Income Protection is a little complicated and a lot overwhelming. That's why we made the Finder Score, to make it easier to compare Life Insurance products against each other. Our experts analysed over 12 products and gave each one a score between 1 and 10.

But a higher score doesn't always mean a product is better for you. Your situation is unique, so your policy choice will be too. Don't think of Finder Score as the final word, but as a good place to start your life insurance comparison.

Read full Finder Score methodology

Frequently asked questions

• How is income protection different from workers compensation?

  Income protection and workers compensation both provide support in the event of an illness or injury, but apply at different times. Income protection is privately held insurance that covers you for injuries and illnesses both at work and outside of work. Workers compensation is run by the government, and only covers injuries at work. Learn more with our guide to income protection vs workers compensation.

• Do I need income protection if I have sick leave?

  If you're employed full time, you'll receive 10 days of sick leave each year, as well as four weeks of annual leave. While you can use this to maintain your income if you are ill or injured, they can run out quickly. They also need to be accumulated throughout the year, so if you're in a new role, you may not have any leave built up yet. In either case, income protection can be worth it to replace your income after using your existing leave days. If you don't have leave entitlements like these, income protection is even more useful.

• Are there ways to save money on income protection?

  If you've decided to take out income protection insurance, there are still ways that you can save money on your premiums. Reviewing your waiting period, benefit period or the way your coverage amount is calculated are a few ways that you can reduce your premiums. You should also compare income protection policies from multiple providers to see which has the best value for you.

• What are income protection waiting periods?

  Your income protection waiting period is the time between you suffering an illness or injury and when your policy starts paying out. You can pick from a range of waiting periods, generally between 14 days and around 2 years. Shorter waiting periods will increase your premiums. If you could survive a little longer on your savings before you receive a benefit, you could consider electing a longer waiting period.

• What are income protection benefit periods?

  Income protection benefit periods is the amount of time for which your policy will continue to pay benefits. If you choose a policy with a longer benefit period, this will result in higher premiums. However, if you can afford to select a shorter benefit period, this will result in cheaper premiums.

• Does income protection come with stepped and level premiums?

  Income protection policies are generally offered with either stepped or level premiums. Stepped premiums will start out lower and increase over time. Level premiums will remain the same over the life of the policy. Which one you choose can make a big impact on the final cost your policy.

• Is income protection tax deductible?

  Income protection premiums are tax deductible in Australia, subject to some basic rules. It's worth noting that you'll still have to pay tax on any income protection benefits that you receive.