Income Protection: your pay cheque, protected
Income Protection replaces a portion of your income, typically up to about 70%, if illness or injury stops you working, paying a monthly benefit until you recover, return to work or the benefit period ends.
What is Income Protection?
After a waiting period you choose, the insurer pays a monthly benefit based on your income. You also choose a benefit period, which is how long payments can continue, such as two years, five years or until a set age.
Shorter waiting periods and longer benefit periods cost more. Many people line the waiting period up with their sick leave and savings so they only pay for the gap. Most policies sold today pay based on your income at the time of claim, and many can pay a partial benefit if you return to work part-time.
What the money can help with
- Everyday living costs and bills
- Mortgage or rent repayments
- Childcare and school costs
- Keeping other financial commitments on track while you recover
- Giving you the breathing room to focus on getting better
Who it's usually most relevant for
- Employees and self-employed people who rely on their income to live
- Single-income households and sole earners
- Anyone with limited sick leave or savings to fall back on
- People with regular commitments like a mortgage or dependants
Why it matters at different stages of life
If you earn an income, this cover tends to matter at almost every working stage. What changes is how much you need and how long you'd want it to last.
20s
Starting out
Your income is your biggest asset, savings are often small, and sick leave only goes so far. Premiums are usually lowest now.
Late 20s–30s
Partner & first home
Rent or mortgage repayments continue whether or not you can work, and a partner's income may not stretch to cover both.
30s–40s
Growing family
Households carry the most commitments at this stage, and an extended time off work would put real strain on the budget.
40s–50s
Peak earning years
Your income is often at its highest, so the gap if it stopped would be too. Reviewing the amount keeps cover in step with your pay.
55+
Nearing retirement
With fewer working years left, the benefit period often ends around 65 to 70, and premiums are higher. It's worth reviewing the waiting period against your savings.
Often a high priority Often worth considering Typically a lower priority. A general guide only. Everyone's situation is different, and the right level of cover depends on your own circumstances.
For business owners
Protecting a business as well as a family
Self-employed people and owners often have no sick leave and no employer safety net, and their income can vary from year to year. Income Protection policies can be structured around how your income is earned and shown, and some insurers offer separate cover for fixed business expenses.
- Policies built around variable or self-employed income
- Choosing a waiting period that matches your cash reserves
- Separate cover for ongoing business expenses, where offered
Things worth knowing
The details that most often surprise people, in plain language.
Pick a waiting period that fits
A longer waiting period lowers the premium but means you rely on sick leave and savings for longer before payments start.
Tax treatment
When held outside super, premiums may be tax-deductible and benefits are generally treated as assessable income. A tax professional can confirm how it applies to you.
Held in super
Cover inside super is possible, but the benefit period is often limited and premiums come out of your retirement savings.
What it doesn't cover
It generally doesn't pay if you lose your job without being unwell, and pre-existing conditions may be excluded or loaded. Always check the PDS.
How the four covers fit together
Each cover does a different job. Many people hold a combination of these covers.
| Cover | What it does | Pays when | Paid as |
|---|---|---|---|
| Life Insurance | Protects your family if you die | Death or terminal illness | Lump sum |
| TPD Cover | Protects you if you can never work again | Permanent disability that stops you working | Lump sum |
| Trauma Cover | Helps you through a serious diagnosis | Diagnosis of a covered serious illness | Lump sum |
| Income Protection | Replaces your pay while you recover | Illness or injury stops you working | Monthly benefit |
Common questions
How much can I insure?
Most insurers cap the benefit at around 70% of your income, because they want you to have an incentive to return to work. The cover calculator on the home page shows what that looks like for your income.
Doesn't my employer's sick leave cover me?
Sick leave helps with short absences. Income Protection is for longer ones, and a common approach is to choose a waiting period that starts when your sick leave and savings would run out.
What if I go back to work part-time?
Many policies offer a partial or income-based benefit if you return to work at reduced hours or pay, so the payment is adjusted rather than stopping completely.
Is it tax-deductible?
Premiums for cover held outside super may be deductible, and benefits are generally assessable. A tax professional can confirm how it applies to your situation.
Want to talk about Income Protection?
Tell us a little about what you're after and we'll come back with general information and options from our product providers, in plain language and with no obligation.