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Income Protection Insurance

Name: Income Protection Insurance
Creator: Savvy
Published: 2020-04-09T17:07:40+09:30

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Written by , updated on July 19th, 2023

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Taking out income protection insurance can be a great way to get back on your feet financially after an injury or illness keeps you off of work for a while. However, finding a policy that's just right for you can take time and effort when there’s a wide range of options available. That's where Savvy can help.

We help you compare policy offers from our trusted insurance providers online. By considering income protection from some of Australia's leading life insurance companies side-by-side, you can compare high-quality options before you buy your policy. Start the comparison process with us today by taking out a free, no-obligation quote.

What is income protection insurance and how does it work?

If you are sick or injured and can’t work for a while, income protection insurance is a type of life insurance policy which can pay you an ongoing benefit until you can get back on your feet. This makes it slightly different from other life insurance policies such as life cover and TPD insurance, which provide the policyholder or their beneficiary a lump sum as agreed upon when their policy is purchased.

In terms of how much you can receive, your income protection insurance may be able to compensate you for up to 70% of your income, which will be based on your earnings over the 12 months prior to your claim (though this will be subject to meeting your insurer’s terms and conditions). This will be maintained for a set period, known as the benefit period, which you’ll select at the time you purchase your policy. You’ll generally be able to choose between benefit periods of one, two or five years, while some insurers may enable you to choose to receive your payments up to the age of 65 if you meet their qualification criteria.

What does income protection insurance cover?

In terms of the events which may lead to an insurance claim, income protection insurance typically includes cover for:

Injury: if you break your leg or take a stumble and you're out of action for a while, your income protection insurance can cover the cost of taking time off work for an extended period, provided your circumstances qualify for coverage.
Illness: if you need to take extended time off work as you recover from an illness for treatment this coverage may allow you to continue to receive part of your income so you can focus on your recovery. This could be anything from mental health to recovering from a heart attack.

As mentioned, income protection insurance can offer cover in the form of an ongoing benefit worth up to 70% of your income. However, insurers will have terms and qualification points you’ll be required to meet, such as the consistency of your income and whether it falls within their set maximum. As such, it’s crucial to compare policies and read product disclosure statements (PDS) to determine what can and can’t be covered.

However, there are some illnesses, injuries and other situations which income protection won’t cover. These vary from insurer to insurer, so it’s best to read the policy document carefully before you sign up, but can commonly include:

Self-inflicted injuries
Normal pregnancy and maternity leave (however, if you suffer from long-term complications relating to your pregnancy, you may qualify for coverage)
Some elective surgeries
Redundancy or loss of work
Injuries or illnesses as a result of the misuse of alcohol or drugs
Injuries or illnesses as a result of illegal activity
Injuries or illnesses as a result of war or civil unrest

How do I compare income protection insurance policies?

There are many factors to consider when taking out an income protection insurance policy, which is why it’s important to compare your options carefully through Savvy. Some of the key areas to consider include:

Inclusions and exclusions

Of course, it’s crucial to consider what is and isn’t covered by your income protection insurance policy. This will help you gain a greater understanding of which events you can be covered for and, crucially, which may not be included in your policy. Comparing PDS documents with different insurers will help you determine which policies offer coverage most pertinent to your needs.

Benefit periods

It’s also essential to make sure your preferred benefit period is supported by your insurer. Whether you decide to cover yourself for one, two or five years after your claim (or up to the age of 65), consider different offers to determine which ones can offer the protection you’re looking for in the event of a claimable incident.

Benefit limits

Additionally, it’s worth looking at how much you may be able to receive as a benefit should you be required to make a claim. While you can generally be paid up to 70% of your income over your benefit period, this won’t necessarily be the case for everyone, so it’s worth comparing on this basis also.

Waiting periods

A waiting period in income protection insurance is the amount of time you’re out of work before you can start receiving your insurance benefits. Depending on your insurer, you may be able to choose anywhere between 30 days and two years, though this will also depend on you meeting their specific qualification criteria.

Policy cost

Finally, while coverage is perhaps the most important area to get right, it’s still valuable to compare policies based on price to help ensure you aren’t overpaying for your insurance. The cheapest quote may not always be the best if it doesn’t afford you the cover you’re looking for.

Types of life insurance

Term life cover

Life cover can pay a nominated beneficiary a lump sum if you’re diagnosed with a terminal illness or pass away. This type of insurance can provide your immediate family or another loved one some financial assistance to cover funerals, medical costs and day-to-day expenses.

Income protection cover

If you’re injured or too sick to work for an extended period, income protection insurance is designed to help you focus on your recovery. You can be covered for up to 70% of your usual wage for a chosen period, such as five years or up to age 65, depending on the level of coverage you buy.

Total & permanent disability cover

This type of insurance is designed to offer cover to those who are permanently disabled by injury or illness and are no longer able to work. You can choose to take out cover for an inability to work in your current job or in any role suited to your qualifications.

Trauma cover

Trauma insurance is a type of policy which provides you with a lump sum payment in the event of a critical illness or major accident. The conditions eligible for claims will be outlined in your insurer's PDS, but can include cancer, heart disease, severe head trauma and cardiovascular disorders.

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Top tips for getting the best income protection insurance

Compare with Savvy

There are plenty of income protection insurance policies on the market. By comparing with Savvy, you’ll be able to consider a range of offers from leading Australian providers. This enables you to compare benefits, inclusions and the cost of premiums from top insurers and policies before you buy your insurance.

Look at the limits

Income protection insurance policies can pay you up to 70% of your normal wage while you're recovering from your accident or injury. However, it’s important to pay close attention to the benefit limits, as it’s important to give yourself as much as you need to get by while you’re off work.

Consider you and your family's needs

It's best to make you and your loved one's financial security the focus. This includes checking benefit limits and what types of expenses they'll cover. For instance, if your partner is earning enough to support your family while you’re off work, you may not need the full 70% maximum benefit (if you qualify to receive it).

Check out some of the extra benefits

While the main game of income protection insurance is to provide you cover if you can't work, some providers may also offer you further benefits as part of your coverage. This can include things such as worldwide cover, death benefit or inflation-proofing, which increases your cover in line with inflation.

Pros and cons of income protection insurance

PROS

Provides a revenue source if you can’t work

If you're unable to return to work due to an injury or illness, income protection insurance can help you continue to pay the bills up to a period you specify when purchasing your policy.

Flexible coverage

Income protection insurance is reasonably flexible, allowing you to tailor your policy depending on you and your family's individual needs in areas such as your benefit size, benefit period and the waiting period.

Tax-deductible premiums

The payments you make on your income protection policy premiums are generally tax-deductible, whether inside or outside super, which could allow you to claim back what you've spent at tax time.

Greater peace of mind

If you suffer from a covered injury or illness, you can be more secure in the knowledge that your funds won’t entirely dry up, enabling you to focus more on your recovery.

CONS

Not all health issues are covered

As with all insurance, companies will outline a list of exclusions, meaning there’ll be some circumstances where you wouldn’t be covered for your injury or illness.

More expensive

Compared to other policies, such as TPD insurance, income protection is more expensive. This is because you're afforded a broader range of coverage than other types of insurance.

Pre-existing conditions may cost you more

If you have a pre-existing medical condition, you're likely to pay a higher premium, as your insurer may deem you to be at a greater risk of making a claim.

Frequently asked questions about income protection insurance

What factors can influence the cost of my income protection insurance?

There are several key factors which will play a role in shaping the cost of your policy, including the following:

Age: older individuals tend to pay more for coverage than younger people
Employment: those deemed to be working in a high-risk occupation are likely to pay more than others in lower-risk jobs
Medical history: pre-existing conditions may inflate your premium
Lifestyle: smoking can significantly increase the cost of your insurance
Income: the more you earn, the more you’re likely to pay
Benefit period: longer benefit periods will likely result in costlier premiums
Waiting period: the longer your waiting period, the less you’re likely to pay for your insurance

How do I buy income protection insurance with Savvy?

Purchasing income protection insurance is fairly straightforward with Savvy, involving the following simple steps:

Complete our online quote form: you’ll need to complete an online form which asks for a range of personal details, including your age, occupation and whether you’re a smoker.
Get a quote: once you’ve submitted the required details, you’ll be provided with a few available coverage options and their approximate costs. If you find an insurance quote that takes your fancy, you can request a Specialist to give you a call back to discuss it further.
Purchase a policy: once you’ve checked over the finer points of the policy you want with your life insurance specialist, you can go ahead and buy your policy.

Do I have to tell my insurer if my situation changes?

You don’t always have to, but it can be in your best interest to do so. For example, if you reduce your working hours for personal reasons, you may be over-insured and paying more premiums than you have to. On the other hand, if your income goes up, your cover may not be enough. Additionally, if you come down with a condition which ultimately leads to a claim, you may not be covered if your undisclosed pre-existing medical issue results in you being forced to stop work.

What happens if I get injured or sick overseas?

You can still be covered if you sustain an injury or become sick overseas and are unable to return to work once you’re back in the country. If you’re unsure about what can be covered, it’s important to check with your insurer before you buy.

Do I have to keep paying my premiums while claiming income protection insurance?

You will need to keep paying your insurance premiums during the waiting period, or your insurance can lapse. Once you start receiving a benefit, however, you don’t have to pay premiums until the benefit payments stop.

What’s the difference between agreed and indemnity income protection insurance?

If you’ve been looking for income protection insurance online, you may have come across the terms ‘agreed’ and ‘indemnity.’ Agreed-value policies pay out an amount that is specified in the contract. Indemnity policies, on the other hand, pay a benefit which is based on how much you’re earning in the 12 months prior to making the claim. Crucially, insurers are no longer allowed to issue agreed-value income protection policies in Australia, so all available income protection policies are indemnity insurance.

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Savvy is partnered with Compare Club Australia Pty Ltd (AFS representative number 001279036) of Alternative Media Pty Ltd (AFS License number 486326) to provide readers with a variety of life insurance policies to compare. Savvy earns a commission from Compare Club each time a customer buys a life insurance policy via our website. We don’t arrange for products to be purchased from these brands directly, as all purchases are conducted via Compare Club.

Savvy does not compare all life insurance policies or providers currently operating in the market. Any advice presented above or on other pages is general in nature and doesn’t consider your personal or business objectives, needs or finances. It’s always important to consider whether advice is suitable for you before purchasing an insurance policy.

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