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iSelect’s partnered with Lifebroker to help you compare a range of Income protection Insurance policies. Not all policies are available at all times or in all areas. Any advice provided on this website is general in nature and does not consider your situation or needs. Please consider if any advice is appropriate for you before acting on it. Learn more.
What is income protection insurance?
A form of life insurance, income protection could mean you still bring home a paycheque even if you can’t work because of a serious illness or injury. Your insurer will pay a percentage of your salary after your waiting period and until the benefit period is up.
Why is income protection important?
Income protection can give you invaluable peace of mind. With income protection, if you aren’t able to work due to a serious illness or injury, you’ll still have a regular income to help pay off debts like your mortgage and help maintain your family’s lifestyle.
Source: Safe Work Australia – Key Work Health and Safety Statistics Australia, 2023
What are the benefit periods for income protection insurance?
Your benefit period is how long you’ll be receiving claim payments from your insurer. This could be measured in time periods, like two or five years, or set as an age cap, such as until you turn 65. You select your benefit period when you take out an income protection policy.
Regardless of how long you’re receiving the payments, once the benefit period is up, so is your income protection.
The same goes for if you’re currently in a benefit period but your policy expires. This might happen because you’ve aged out of the policy (yes, even when you’ve left childhood long behind, you can still grow out of things). For instance, if you made a successful claim at age 64 and had a set two-year benefit period, you’d only be receiving the benefit up until when you turn 65 and the policy expires.
The Product Disclosure Statement (PDS) may give you a clearer idea of how benefit periods work for your policy.
It may be worthwhile thinking about what benefit period gives you peace of mind without straining your budget. You could opt for a shorter period, assuming you may eventually recover or find an alternative means to earn an income. On the other hand, you might want to know that you’re protected until you’d be (hopefully) retiring anyway. Unsurprisingly a longer benefit period will likely mean a higher premium.
What are the waiting periods for income protection insurance?
Your waiting period is how long you’ll have to sit tight before you can start claiming. If you get better before the end of it, you won’t be able to claim.
Waiting periods can vary a lot between insurers and policies. You may find some are as short as 14 days while others can stretch to 60 or 90 days. Even two years isn’t unheard of.
To give you some context, looking at workers’ compensation claims in 2021–22 where workers were unable to do their job for at least a week, the median time off work was eight weeks. Workers who also held an Income Protection policy with a waiting period of less than eight weeks may have been able to claim income protection, while any with a longer waiting period may have had to take the financial hit.
Income protection insurance explained with Canna Campbell
Canna Campbell from SugarMamma TV gets to the heart of income protection.
Canna Campbell
SUGARMAMMA TV
Get the facts on income protection
What does income protection insurance cover?
Income protection is designed to cover you to up to 70% of your income if you are unable to work due to illness or injury.
What doesn't income protection cover?
If you have a risky job or hobby, or a pre-existing medical condition, you might find illnesses and injuries related to these fall outside your cover, known as an exclusion. Similarly, you likely won’t be covered for intentional or illegal acts.
How do you compare income protection insurance?
It may be hard to compare policies if you don’t know what you’re looking for. You might like to get the ball rolling by thinking about your desired level of income protection, what benefit and waiting periods work for you, and if any exclusions could be at play.
How do you claim income protection?
To make a claim, you’ll need to show you can’t do the important parts of your job — and aren’t starting a side hustle — as well as being seen by a doctor for your illness and injury. This may mean providing medical records, sometimes regularly, and having an assessment.
Helpful Tip:
Different jobs may be seen as less risky as you gain experience. For instance, for some insurers, a first-year carpentry apprentice may not be able to get cover, while a second or third-year one could. Once their apprenticeship is finished, they may even be able to get more protection again.
Income Protection Insurance FAQs
How much does income protection insurance cost?
Your premium can depend on numerous factors, including things like your age, gender, job and lifestyle. You could probably make a good guess of what’s contributing to yours by looking at what information the insurer asked you for when you went to buy a policy.
Of course, every insurer is different. They may weigh up different aspects in their own ways. As a result, you could find that policies that offer you a similar level of cover don’t always have the same premiums.
Does income protection insurance cover redundancies?
No. Unfortunately, your income protection insurance most likely won’t cover you if you are made redundant or take a voluntary redundancy package. After all, income protection is for if you can’t work, rather than are out of work.
Having said that, it may be possible to find income protection insurance that includes redundancy as an extra, but you may need to pay a higher premium. Additionally, there may be exclusions that apply.
Do income protection insurance premiums include GST?
If you’re worried about your income protection premiums carrying some extra weight, you can rest easy. Since Income Protection Insurance is classed as a financial service, it means your premiums are GST-free.
Do I have to get income protection insurance for a specific occupation?
There are no jobs that specifically require you to get Income Protection Insurance. Having said that though, it may be worthwhile considering if your job has a level of risk attached to it. For instance, working up high or with heavy machinery may mean you’re at greater risk of an injury than someone working in an office. Some trades people may require income protection to be allowed on site.
If you’re self-employed, income protection insurance may also be a way that you can safeguard your livelihood if you were unable to work for a stretch of time or ever again.
It’s ultimately up to you to weigh up the risks and what could happen if you were unable to work, whatever your job may be.
Is income protection insurance tax deductible?
If you’re still shifting through the pros and cons of income protection, it may help to know that your premiums may be tax deductible. Well, as long as your income protection isn’t tied in with your superannuation.
And if you do get your income protection paid out in the event of serious illness injury, you’ll need to include these payments on your tax return for the Australian Taxation Office (ATO). These payments essentially act as your regular salary, so you’ll need to pay tax on them.
This is different to other forms of life insurance premiums, which aren’t tax deductible.
What kind of information will I need to provide?
Generally, your insurer will ask for the following information:
- Your age
- Your job and income, whether that’s salary, wages and/or commissions
- Your medical history
- Your lifestyle, like if you regularly drink or smoke, or take part in high-risk sports or hobbies
However, each insurer is different. They may ask more or fewer questions. Keep in mind that if they don’t ask about your medical history, this could mean that the policy comes with more exclusions.
When sharing any information with your insurer, remember to be honest. While it can be tempting to omit facts or alter them in the hopes for a lower premium, this could come back to bite you in the unfortunate event you had to make a claim. If your misrepresentation were found out, your insurer could deny your claims, change your policy or completely cancel it.
What are loadings and exclusions?
As you’re comparing income protection policies, you may want to keep an eye out for an loadings and exclusions. These could change how you rank a policy.
Loadings are a percentage increase on your premium. They’re a way for insurers to manage the increased possibility of certain people making a claim. For example, if you have a pre-existing medical condition and want to get cover that includes it, a loading might be added to your policy.
Exclusions can also come about because of pre-existing medical conditions, along with other high-risk factors, like jobs, hobbies and even travel plans. If your policy excludes something, like being injured while cliff diving to the point that you can no longer work, you won’t be able to claim your income protection.
You could get a better idea of your policy’s loadings and exclusions by speaking with your insurer or reading the Product Disclosure Statement (PDS). Additionally, the PDS or your insurer may be able to let you know if there’s any possibility to have these exclusions and loadings reviewed and changed.
Which income protection policy is best?
As convenient as it would be to have a clear winner in the income protection bracket, it’s just not possible. Everyone’s needs and circumstances are different, so a policy that might come out on top for you may be dead last for your neighbour. This is why taking the time to shop around and comprehensively compare policies can make such a big difference.
Handily, iSelect and Lifebroker can help you compare a range of income protection policies from different providers in a matter of minutes, if you want to speed up the process.
Can I get income protection if I’m self-employed?
Running your own business can be exciting but sometimes it’s nice to know there’s a safety net too. Thankfully, along with Business Insurance, you can get income protection if you’re self-employed.
There may be some eligibility requirements though, like working a certain number of paid hours each week.
When it comes to declaring your income for your policy, you’ll also have to do a few extra calculations. This tends to be calculating it as what your business earns minus any costs your business incurs. Of course, this can change a bit between insurers (as well as business years), so you may want to double-check with them before putting pen to paper. Additionally, you may need to be prepared to provide evidence of your final number, like previous tax returns.
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iSelect Life Pty Ltd – ABN 89 124 304 347, AFS Licence Number 331128. Any advice provided by iSelect is of a general nature and does not take into account your objectives, financial situation or needs. You need to consider the appropriateness of any information or general advice iSelect gives you, having regard to your personal situation, before acting on iSelect’s advice or purchasing any policies. You should consider iSelect’s Financial Services Guide which provides information about iSelect services and your rights as a client of iSelect.