Cost of income protection in Australia

How much does income protection cost?

The cost of an income protection policy is going to be unique to your personal situation. This is because Insurers set your premiums according to how likely they think you are to make a claim. Here are some of the factors insurers consider when setting your premium:

• Age
• Gender
• Smoking status
• Occupation
• Lifestyle choices
• Current health and medical history

These can also include the choices you make when choosing income insurance:

• How you buy income protection insurance (direct, broker, or through super)
• The amount and period of cover required
• Policy inclusions
• Stepped vs level premiums

Average monthly premium

We gathered over 190 quotes from 12 different of Australia's top providers to give you an idea of how much the average monthly income protection premium is. We considered a mix of profiles, including both male and female accountants and carpenters, with an annual income of $70,000. The policy we were quoted for was an income protection policy with a monthly benefit of $3,000. Here are some of the key takeaways:

• Premiums for carpenters were 14% more on average than for accountants.
• Women were quoted 27% more on average for the same level of income protection cover across both occupations.
• Male accountants were quoted at the lowest at $55.48 on average.

Provider breakdown - income protection premium costs

Aside from your unique circumstances, your choice of provider can significantly affect your income protection premiums. The biggest reason? Every provider has its own criteria for assessing your risk, so you'll get a range of prices for the same level cover with different insurers. At times the price differences may be a business decision. Some insurers may offer you lower rates to remain competitive, while others with higher admin costs might charge more to cover those expenses.

We took a close look at 12 of Australia's top insurers and saw a distinct difference in the average monthly income protection premium. Some of the most notable findings were:

• For a policy with a $3000 per month benefit, the average monthly premium was $76.75 across all providers.
• Medibank had the highest the most expensive policies, with an average monthly premium of $121.72.
• HCF was consistently the cheapest provider, with the lowest average monthly premium of $37.20.

Bear in mind, these quotes should only be considered as a guide. Income protection premiums will always vary person to person, so it's best to speak with a provider or professional to get the most accurate idea of what your income protection premium will be.

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What affects the cost of income protection insurance?

The cost of your income protection policy will be based on your level of risk to insurers as well as a few of the choices you make when buying your policy.

• Age: As you get older, your premium will typically increase due to the higher chance that you'll have health issues. That's why you'll often see higher premiums for someone who's aged over 60, compared to someone in their 30s.

• Gender: Women may pay more for income protection than men on average. This is driven by historical patterns that show women are more likely to file for and make claims than men.

• Smoking status: Smokers typically will have much higher costs for their premiums compared to non-smokers due to the health risks associated with smoking. With certain insurers you will be rewarded if you stop. For example, you may see a discount on your premium if you quit smoking for at least 12 months before renewing or buying a policy.

• Occupation: People in high risk jobs, like construction or mining, might get higher premiums based on the greater hazards of their job. Your level of income will also impact your sum insured. If you are a high-earner you'll likely have a higher monthly premium compared to someone with a lower income.

• Lifestyle choices: If you have any "adventurous" or dangerous hobbies, such as skydiving or rock climbing, this can lead to increased premiums due to the added risk factors.

• Current health and medical history: Past or ongoing health issues usually lead to higher premiums. This is because insurers see you as a higher-risk to make a claim.

• How you purchase your insurance: Your overall cost of income protection insurance can change depending on the channel you choose to buy your policy. Whether it's a deal you get through a provider, extra fees while using a financial adviser, or the discounts of a group insurance policy.

How to lower the cost of your income protection premium

If you want to lower your income protection premium, here are a few strategies that can make a difference:

• Shop around: Start by comparing prices from multiple insurers. Some companies might offer you better rates or a discount for switching your policy as a new customer.

• Reassess your cover needs: Assess your current financial situation. You might be paying for more than you need. Reducing your benefit amount or period or cover can significantly lower your monthly premium.

• Negotiate with your insurer: If managing your premium is becoming a challenge, have a chat with your insurer. Some insurers will work with you to find a solution, which can be a discount or altered payment plans to keep you as a customer.

• Make healthy changes: Demonstrating improvements in health, like quitting smoking or regularly exercising, can lead to lower premiums if you reassess as a lower risk.

• Extend your waiting period: Typically the longer you have to wait to be eligible to claim your benefits, the lower your premiums will be. Just make sure you have the resources to cover the gap.

• Consider stepped premiums: Choosing stepped premiums will start you off with lower premiums at the beginning of your policy. This will increase gradually as you age, aligning your costs as your income grows.

• Utilise suspension options: If available, temporarily pause your cover during certain life events to save on premiums without losing long-term protection.

• Bundle policies: Combining income protection with other types of insurance from the same provider can potentially net you discounts and save on your overall insurance costs.
• Review regularly: Frequently review your policy to ensure it aligns with your current lifestyle and needs. Making adjustments as necessary can help you avoid paying for excess cover.

Frequently asked questions

• What is the average cost of income protection insurance

  The average cost of income protection insurance policy with a $3000 per month benefit is $76.75. This is based on a mix of profiles for both men and women, accountants and carpenters, with an annual income of $70,000.

• Is income protection insurance worth it?

  Income protection insurance can give you financial relief if you're unable to work due to an injury or illness. This can be particularly useful if you've used up all your sick relief or aren't eligible for workers compensation. You'll be entitled to up to 75% of your income with most policies, which can help pay for expenses that inevitably come your way while you're out of action.

  Whether it's ultimately worth it for you will depend on your budget and ability to afford the policy premiums and in the future. Various factors like your age, health, and lifestyle will impact how much your income protection premium will be. You should weigh this up with your budget to decide if it's right for you.

• How do I calculate how much income protection insurance I need?

  Work out how much income you'll need to cover general living expenses if you're unable to work. Consider any current future debt payments as part of this. This is a good price ceiling for you to work with to know what you can afford. It's also worth checking whether you already have a level of income protection through your superannuation or from another insurance policy. Many Australians will get income and life insurance by joining their superfund, which may make buying an expensive income protection policy unnecessary.

[/faq_question_accordion]Generally, the premiums you pay for income protection insurance will be tax deductible. The main exception is if you get income protection from your superannuation and your premiums are paid with your super contributions.

Any benefits you receive to replace your salary or wages under an income protection policy will be taxed and treated like regular income. You'll have to include this in your tax return

Written by

Gary Ross Hunter

Editor, Insurance

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

Gary Ross's expertise

Gary Ross has written 644 Finder guides across topics including:

• Health, home, life, car, pet and travel insurance
• Managing the cost of living

Co-written by

James Martin

Editor

James Martin was the insurance editor at Finder. He has written on a range of insurance and finance topics for over 7 years. James often shares his insurance expertise as a media spokesperson and has appeared on Prime 7 News, WIN News, Insurance News, 7NEWS and The Guardian. He holds a Tier 1 General Insurance (General Advice) certification and a Tier 1 Generic Knowledge certification, both of which meet the requirements of ASIC Regulatory Guide 146 (RG146). See full bio

James's expertise

James has written 204 Finder guides across topics including:

• Car, home, life, health, travel and pet insurance
• Managing the cost of living
• Money-saving tips