Income protection insurance offers financial support if you’re unable to work due to illness or injury. This coverage can help ease the burden of bills and expenses, allowing you to focus on recovery.

What Income Protection Insurance Covers Income protection insurance typically pays up to 90% of your pre-tax income for the first six months of disability, and up to 70% for a specified time thereafter. This policy is tailored to replace your income based on your earnings in the year before your disability.

Each policy has its own criteria for partial or total disability, so it’s important to review the insurer’s guidelines to understand the coverage and any exclusions.

Determining If You Need Income Protection Insurance You may benefit from income protection insurance if you are:

Self-employed or a small business owner, lacking sick or annual leave benefits A provider for dependents relying on your income Managing debt (e.g., a mortgage) that requires payments even if you’re unable to work To gauge how much coverage you need, create a budget to understand your monthly expenses and the income required to sustain your lifestyle. Consider other financial safety nets you may have, like total or permanent disability or trauma insurance, private health insurance, or support from family and friends.

Choosing the Right Policy When selecting an income protection policy, consider:

Policy type: Indemnity value policies base payouts on your salary at the time of the claim, while agreed value policies set a predetermined amount when you sign up. Indemnity value policies are now more common due to regulatory changes. Waiting period: This is the time between your claim and when payments start. A longer waiting period typically lowers premiums. Benefit period: The length of time payments will last if you can’t work. Longer periods offer more protection but come with higher premiums. Stepped or level premiums: Stepped premiums increase with age, while level premiums remain stable but start higher. Buying Income Protection Insurance Check your super fund as it may offer default income protection insurance at a lower cost. You can also buy directly from insurers, brokers, or financial advisers. Premiums paid outside super are usually tax-deductible and offer more customization.

What You Need to Disclose When applying for income protection insurance, be prepared to disclose information about your age, job, income, medical history, lifestyle, and hobbies. Honesty is crucial to avoid policy cancellation or claim denial.

Making a Claim If you need to make a claim, follow the insurer’s guidelines. Any payments received under your income protection policy must be included in your tax return.

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