What Is Income Protection Insurance In Australia?

Students want to know what income protection insurance is with Australian super.


Have you ever thought about what would happen to your family when you lose your job due to an injury or illness?


Thankfully, insurance plans take away the financial pressure to help you get back on your feet under those circumstances.


“Income protection insurance” is vital as it covers your living costs for a specified duration while you are recovering.


Keep reading this blog to learn about the Income Protection plan – what it is, who needs it, how it works, how to buy it, and the best income protection insurance in Australia.



1. What Is Income Protection Insurance?


Income protection insurance pays a regular cash amount of up to 70% of your lost pre-tax earnings for a fixed period if you can not work due to a partial or total disability caused by injury or a sudden sickness.


This monetary support helps you recover your medical and living expenses, such as bills and groceries, and maintain your lifestyle. It instils confidence and peace of mind that your family's financial security is secured.


Income protection is part of superannuation policies, but you can also take it as a standalone policy.



2. Types of Income Protection Insurance Plan


Aussies have two ways to protect their income using this monthly benefit plan:


  • Agreed value
  • Indemnity


When you choose the Agreed value option, you decide the amount you expect to receive per month (up to 70% of your monthly income validated at the time of application) to meet your financial commitments.


The Income protection insurance can be more expensive than the Indemnity-type but can help preserve your monthly insurance payment when you aren’t sure about your future earnings.


In the case of Indemnity, you prove your income at the time of claim (instead of during the application). Your salary at the time of claim will determine the payout you receive under the policy.


If you earn less money since you purchased the insurance policy, you will receive a smaller monthly benefit. It is relatively cheaper, but the benefits can get impacted if you become unemployed, take prolonged leave, or switch to a part-time job.



3. Who Should Buy An Income Protection Insurance?


If you fall in any of the below categories, you are a suitable candidate for the income protection insurance:


  • You want to maintain your financial independence and lifestyle in the event of injury or illness 

  • You are the sole income earner in the family whether or not you have any dependents

  • If you have family members who rely on your monthly income to keep the household up and running

  • If you own a small business or are self-employed and do not get any sick or yearly leave

  • Have outstanding debt whose instalments need to be paid even if you are not able to work


Consult an income protection insurance broker to help decide whether you need income protection insurance and the level of income protection you require to secure your family financially.



4. What Is Included And Excluded Under Income Protection Insurance?


So now that you know who this insurance is for, let us explore what the plan covers and doesn’t cover.



What Is Covered:


Under the income protection insurance, you receive a monthly benefit if the injury/illness is due to the following:


  • Prolonged illness

  • Complete disablement

  • Acute partial disablement


There are three types of disabilities covered under an income protection policy:


  • Duties-based disability: You are entitled to receive the benefit amount when your ailment or injury prevents you from doing the income-producing duties of your profession. However, if you can do some of the duties, you are eligible for a partial benefit.


  • Hours-based disability: A disability may reduce your work hours. In this case, you qualify for full benefit if you can not work in your profession for a minimum of 10 hours per week.  On the other hand, if you can work for 10 hours or more per week, you may receive a lower benefit.


  • Income-based disability: You qualify to receive a 100% monthly benefit if your insurer considers you disabled when your income is 20% lower or more due to injury or illness. However, if you can work and earn a certain percentage of your income, you receive a partial benefit.



What Is Not Covered:


The plan does not cover you if the illness or injury has happened directly or indirectly due to the following cases:


  • Voluntary resignation from job

  • Pre-existing health conditions

  • Pregnancy

  • Self-sabotage

  • Alcohol or drug-induced injury or sickness

  • Criminal activity

  • Terrorism and War

  • Any mental health-related condition

  • Back injuries

  • Fatigue

  • Heights

  • Football related injuries

  • Aviation

  • Dangerous professions

  • Risky hobbies


Thus, before applying for a policy, you must learn what the insurer defines as disability and the conditions you must fulfil to make a claim.


Check the product disclosure statement of your policy or speak to an insurance broker to get an accurate idea of the inclusions and exclusions.



5. How Does The Income Protection Plan Work?



How Does The Application Work?


When you apply for income protection insurance, the insurer will evaluate your personal and occupation details to determine the premium based on how risky you are.


Next, an application specialist will ask a few questions about your past, profession, earnings, to personal medical history. After this step, your application will be lodged, examined, and underwritten.



How Does The Insurance Plan Work?


The insured receives a monthly benefit if he can not work due to an injury or illness. To be eligible to claim on the policy, the insured has to spend a certain period away from work. The period is called a waiting period, between 14 days to 2 years.


The insured must be unable to work due to his illness/ injury after the waiting period to receive the payments.


The insurers allow policyholders to specify the waiting period for their first payout under the income protection plan. The longer the waiting time, the cheaper the insurance plan.


Many insurers that offer income protection insurance like Allianz require adequate proof showing your inability to work. It can be with a doctor’s note or communication with your employer.


To be eligible to get a monthly benefit from your insurer, you also need to pass the waiting period.


The insurance benefits are payable for the duration of suffering from a temporary disability and up to the maximum benefit limit as specified in your policy. 


The payments received can be used in the following ways:


  • Mortgage repayment

  • Buy groceries, petrol, clothing, and other daily essentials

  • Pay school fees

  • Childcare services

  • Pay off credit card bills and other outstanding debts

  • Pay for the medical and recovery expenses 

  • Maintain the standard of living


Based on your policy, you may even receive an extra payment into your super fund, which helps your retirement savings to grow even when you aren’t able to work.



6. Frequently Asked Income Protection Questions



Who Are Eligible To Apply For Income Protection Cover?


Australian residents aged 18 - 63 are eligible to take out this cover. In some policies, the maximum age for application is 59.


The insured must be employed for at least 20 hours per week and in the same job for one year.



Can A Self-Employed Get This Cover?


Yes, provided you complete the minimum work requirements of at least 20 hours a week and have remained self-employed for at least a year.


You may require providing proof to the insurers to verify your income.



Is It Possible To Decrease Or Increase The Level Of Insurance Cover?


Yes. Most top insurers that offer income protection insurance like NRMA allow you to adjust your policy cover or increase/decrease your premiums based on your requirements.



Do I need to Pay for Cover When I am Receiving The Insurance Payment?


No, you do not have to pay for coverage when you are under claim.



What is Income Protection Insurance Through Australian Super?


Taking out cover through your superannuation is generally cheaper than buying a standalone policy.


If you choose to buy this insurance through Australian super, your cover costs will depend on your amount of cover, your age, and your work rating.


Anyone between 15 and 69 is eligible to take out this plan. You can apply to change your cover amount, benefit payment period or cancel. 


The maximum applicable cover amount is 85% of your monthly salary or $30,000 a month, whichever is lower. The insured will receive up to 75% of the monthly salary, and 10% goes to the super fund.


It is important to note that this income protection covers only partial or total disablement and no redundancy. Super funds don't pay any benefits for loss of earnings due to business closure or the unavailability of work shifts.



What Information Do You Need To Provide When Applying For An Insurance?


The insurer will ask you the following questions at the time of application for the policy:


  • Age

  • Gender

  • Occupation

  • Income (wage, salary, commissions)

  • Personal and Family Medical history (to check pre-existing medical conditions and hereditary illnesses)

  • Lifestyle 

  • Indulgences in high-risk past times, such as sky diving or sports 

  • Other information: If you are planning to change your occupation or switch to a new employer, you should let your insurer know about it.  


Based on the above information, the insurer decides:


  • Whether they should insure you?

  • How much should be your premiums? 

  • What would be the terms and conditions for your policy?



Do I Receive Any Benefit If I Cancel My Policy?


No. As there is no surrender value, you would not get any benefit from the cancellation of the policy.



Is The Income Protection Insurance Plan Tax-Deductible?


Yes. Your premiums are 100% tax-deductible. However, it may change if your insurance cover is funded via a superannuation provider.


 As per the Australian Tax Office, you may claim the premium you pay towards your income protection insurance against the earnings loss.


While you claim the premium payments for the tax benefit, you will also have to show payments received as “income” under the income protection insurance.


It is beneficial to consult a tax specialist to understand the tax implication for benefits received under this insurance plan.



Which is The Best income Protection Insurance in Australia?


There is no “one size fits all” in an income protection insurance plan. These policies differ based on levels of compensation, terms and conditions, premiums, and disability definition.


The best income protection policy would be the one that meets your financial commitments and charges an affordable premium during the loss of earnings due to disabilities or injuries. Compare different plans and shop around to find the most suitable deal. 


Real income protection insurance and HESTA income protection are two popular insurers that offer competitively priced and flexible insurance plans. 



What is The Average Cost of Income Protection Insurance In Australia?


As everyone is unique, so are their insurance needs. The average cost of your insurance depends on various factors, including age, job, medical history, lifestyle, and the cover you need.


You can find a free Income Protection Insurance Calculator designed to compute how much cover you may require to cover your income in the event of an inability to work.


To use this calculator, you need to enter your Gross Annual Income, and the tool will give you an estimate of how much "cover" you are eligible to get every month.



How Can You Make Payments For Your Insurance Plan?


There are two ways in which an insured can structure their premium payments towards the income protection insurance:


  • Stepped premiums: This premium type increases every year in line with the policy renewal and increases with the insurer’s age.

  • Level Premiums: In this type, the policy premiums are independent of age or policy renewal but may increase due to other factors, like inflation.



What Is The Best Income Protection Insurance For Nurses In Australia?


If you are searching for a plan that suits your needs, you must compare income protection insurance’s benefits and features across different insurers to make an informed choice.


Insurer Name Max. Monthly Benefit The maximum percentage of Earnings Covered Maximum Benefit Term Average Claims Acceptance Percentage

AAMI Income Protection



Up to 5 years


Suncorp Income Protection



Up to 5 years


NobleOak Disability Income Protection


70% for the initial 2 years and 60% thereafter

Up to 65 years


Insuranceline Income Protection



Up to 5 years


TAL Income Protection



Up to 65 years




How Do You Claim Your Insurance Policy?


To claim your policy provider, you will have to submit evidence of your injury or ailment and the following details:


  • Your policy number

  • The date when your health problem began 

  • The date when you stopped working

  • Copies of relevant medical tests and medical forms from your doctor

  • A Medicare authority form to help your insurer access your medical information


It is best to call the insurer if more documents are needed to make a claim. It will help avoid unnecessary delays and speed up the claim settlement process. 


7. Conclusion


Paying bills and mortgages can be stressful when you get struck by an unforeseen injury or illness.


Having income protection gives you peace of mind knowing that you can repay your living expenses, medical bills, and debts during your recovery.


If you don’t have this insurance yet, reach out to an insurance broker and get one today.


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