Income Protection FAQ
What is income protection insurance?
In the event of a claim, the insurer will pay an amount (normally up to 75% of your gross salary in Australia) until you have recovered sufficiently to work again, or up until the maximum benefit period as stated in the policy; 2 years, 5 years or up to age 65.
In the event you can’t work due to illness or injury, income protection insurance aims to protect your income by providing you with an income stream, it acts as a backup plan.
Income protection is also known as salary continuance insurance. The reason why you can’t get the full 100% of your income is to provide you some incentive to get back to work, while providing you with enough income to help toward bills.
How much income protection cover can I get?
Depending on the policy, an Income Protection will generally cover 70% of your annual income (including super) as monthly benefit. Some policies offer booster payments of up to 90% in the first 6 months. This monthly benefit is taxed as regular income.
Things to consider:
- Costs of meeting your debts (mortgage, etc.)
- Providing enough funds for a spouse, children or other dependent
- Maintaining your assets & investments
- The benefits are taxable, but the premiums are generally tax deductible.
If you choose a level of cover than is more than your financials can justify, you will be paid the lessor amount according to your actual earnings. If you are self-employed BEWARE – cash in hand jobs, that are not declared, do not count towards proving your income come claim time. It’s important to select as close as possible to the right amount of cover so that you are not unnecessarily paying premiums that are too high.
Do I need to do medicals?
There is no requirement for a medical, except if your cover amount is above certain limits or you have a pre-existing medical condition that the insurance company wishes to find out more about before offering cover.
Typically, you can get up to $7500 or higher without the need for a medical, although it does vary according to your age. If you are younger you can get higher amounts without a medical.
If you have a pre-existing condition the insurance company my require you to do medical test(s). Importantly, these tests are of no cost to you.
What is the difference between income and loan protection insurance?
Income protection insurance will cover you for up to 75% of your income, while loan protection insurance generally covers up to loan repayment amounts. Income protection can provide you a higher benefit to assist you in meeting other needs/bills outside of your loan repayments?
There is another form of insurance called mortgage protection insurance that’s a combination of life insurance and income protection insurance. Ask us about that if that’s of interest.
What does income protection insurance cost?
Income protection costs vary greatly according to some of the following factors.
- Age – the cost of obtaining cover generally increases over time
- Gender – Females typically pay a higher amount due to a higher claim ratio for income protection. Females pay less for life insurance.
- Health and pre-existing conditions may either increase your premium costs or exclusions might be offered on your policy or both.
- Whether or not you smoke – If you currently smoke, or have smoked within the last 12 months, you will pay more in premiums compared to a non-smoker. The good news is if you stop smoking for 12 months you can be rated as a non-smoker and have the premiums reduced.
- Occupation – If your occupation is hazardous or high risk, you will pay a higher premium compared to someone who works in an office.
- Waiting period – how long you can be off work before you require the income to commence. The shorter the waiting period the higher the policy costs. The most common waiting period is 30 days, but shorter waiting periods of 14 days are available and longer waiting periods of 90 days are common. It’s important to remember with your waiting period that payments are made 30 days after you are eligible to receive your claim. So, if you choose a 30 day wait your first payment will come at 60 days, this is often not well understood. If you choose a 90 day wait, the first payment will be after 120 days for successful claims.
- Benefit Period – The higher the benefit period the more the insurance costs. The benefit period represents how long the policy will pay out for while you are on claim. Standard terms are 2 years, 5 years or all the way up to age 70. If you have recovered from your sickness or injury and are able to return to work, then the monthly benefit will cease, and the benefit period resets for new claims unrelated to your original claim.
- Additional policy features – comprehensive cover, basic cover or any additional features will also affect the policy premium.
Who offers the cheapest income protection insurance in Australia?
We compare up to 8 insurance companies in Australia, rather than just a couple. This service is offered at no cost to you. The companies on our panel are all large retail insurance companies that are well established brands. Each insurance company have “niche” areas where they are looking to attract business so quotes can vary wildly between providers.
To find income protection insurance for you, complete our enquiry form, or contact us via email or phone 1300 793 143. This is a free, no-obligation service.
If you feel comfortable with the information provided in your initial enquiry, please let our consultants know during your discussions.
Why do I need income protection insurance?
Income protection provides a back up plan to help offset your bills and expenses if you are unable to work due to sickness or injury.