Income protection insurance

Income protection insurance is a type of cover that provides you with regular payments if you’re unable to work due to illness or injury. It’s designed to replace a portion of your income so that you can continue paying your daily expenses—like rent or mortgage repayments, bills, and groceries—while you recover.

Unlike workers’ compensation, income protection can cover you even if your injury or illness happens outside of work.

This financial safety net gives you peace of mind that you can maintain financial stability and focus on getting better, rather than worrying about how to make ends meet.

Income protection insurance is ideal for anyone who relies on a regular income to cover living expenses such as rent, mortgage repayments, bills, and groceries.

It’s particularly valuable for self-employed people, contractors, or employees without generous sick leave entitlements.

However, this type of cover is important for employees as well. While employees may have access to paid sick leave, annual leave, or long service leave, those benefits only go so far. Employers aren’t obligated to continue paying wages if you can’t return to work.

If an illness or injury would significantly affect your ability to meet financial commitments, taking out income protection can provide essential financial security while you recover.

Typically, Australian income protection insurance covers a portion of your income — usually up to 75% — if you’re unable to work due to illness or injury. The payments are made as regular instalments, helping you manage everyday costs like mortgage or rent, utilities, and medical expenses. 

Depending on the policy, insurance cover may include both short-term and long-term disability, with flexible waiting and benefit periods to suit your financial situation.

Income protection insurance does not cover every situation. It typically excludes redundancy, dismissal, or reduced working hours unrelated to illness or injury.

Pre-existing medical conditions may also be excluded unless disclosed and accepted by the insurer. Self-inflicted injuries, injuries sustained during illegal activities, or claims made outside the policy’s waiting period are usually not covered.

Always check your Product Disclosure Statement (PDS) to understand specific exclusions before purchasing a policy.

The cost of income protection premiums in Australia depends on several factors, including your age, occupation, income, smoking status, waiting period, benefit period, and level of cover.
On average, income protection premiums can range from 1% to 3% of your annual earnings. Policies with shorter waiting periods or longer benefit durations typically cost more.

Yes. In Australia, income protection insurance premiums are generally tax-deductible if the policy is held in your own name and designed to replace your income when you can’t work due to illness or injury.

The Australian Taxation Office (ATO) allows this deduction on your tax return because the expense relates directly to earning assessable income.

However, if your income protection policy is held through your superannuation fund, you personally can’t claim the deduction — the super fund may be eligible instead.

It’s also important to note that lump-sum benefits, such as those paid for death or total and permanent disability (TPD), are not deductible, as they don’t replace regular income.

Note that if your policy combines income protection with other types of cover, only the portion relating to income replacement can be claimed.

Income protection insurance payments are generally made every four weeks after a waiting period you choose when taking out the policy. These monthly payments continue for the benefit period specified in your cover.

The benefit period is the length of time your insurer will continue paying your income protection benefit while you’re unable to work due to illness or injury.

Payments begin after your chosen waiting period ends and continue until you either recover, return to work, or reach the maximum period set out in your policy.

In Australia, the most common benefit period options are:

• 2 years: A cost-effective option that provides short-term financial support.
• 5 years: Offers medium-term cover for more serious or prolonged recoveries.
• To age 65 or 70: Designed for long-term protection, often preferred by professionals or those approaching retirement.

Generally, the longer your benefit period, the higher your premiums — but you’ll also have stronger financial security if you can’t work for an extended time.

When deciding on a benefit period, think about your emergency savings, ongoing expenses, and how long you could realistically manage without income.

Our brokers can help you compare income protection insurance policies and select a benefit period that balances affordability with the right level of cover.

Yes. Many Australian superannuation funds include income protection insurance automatically or offer it as an optional extra.

The main advantage of holding income protection through your super is convenience. Premiums are paid from your super balance instead of your take-home pay, which can make it feel more affordable.

However, there are a few key differences to understand compared to standalone policies:

• Limited flexibility: Policies inside super often have set benefits and waiting periods that can’t be customised.
• Tax differences: Premiums paid through super aren’t personally tax-deductible — only the fund can claim the deduction.
• Payment delays: Benefits may take longer to be released because they must meet the Australian Government’s superannuation release conditions.
• Coverage restrictions: Definitions of disability and income loss inside super can be narrower, meaning you might not qualify for the same level of benefits.

Speaking with a qualified income protection insurance broker can help you assess which option gives you the most reliable cover and long-term value.