Business Insurance Online :: Articles

Income protection insurance

What is income protection insurance and why is it important for Australians?

Income protection insurance

The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.

It's trite but true to say that, for most people, their most valuable asset is their ability to earn an income. But how relevant is income insurance to most Australians?
Ask yourself what would happen if you woke up tomorrow and found you were incapable of working for an extended period.
Could you support your household?
Meet your loan repayments?
Save for the future?
Income protection insurance, also known as disability insurance, pays you an income if you are unable to work because of sickness or injury.
You can insure to receive payments (usually monthly) of up to 75 per cent of your current income while you're out of action.

Doesn't WorkCover or my super fund already protect me?

Insuring your most valuable asset
Image for Insuring your most valuable assetWhile many people would consider their home or their car to be their most valuable asset, it's your ability to earn an income that is most important in shaping your financial future. Statistically, two thirds of working Australians will suffer an injury or illness that will sideline them for 90 days or more. The majority of these people would not be able to pay their mortgage or meet car finance and other loan commitments without adequate income insurance.
WorkCover protects you if your injury is connected with work. But it doesn't cover you for sickness or if you have an accident hiking on holidays.
It's worth checking on your super fund, though. Many super funds now provide salary continuance insurance which will pay you an income for up to two years if you're unable to work.
This may mean you can get away without income protection insurance, or opt for a cheaper policy.

How do I choose an income protection policy?

It's worth talking to an adviser (as opposed to a salesperson) about which one suits your needs. Most insurers have several products on offer and a range of options that come with each product.
The first choice is between an agreed-value policy and an indemnity policy.
With an agreed-value policy, you have to prove your income up front, but once that's done, you know exactly what you'll be paid if you're unable to work.
This type of policy is more expensive, but suits people like the self-employed who have variable incomes and want some certainty about their claims.
With an indemnity policy, the company generally insures you for what you say you earn up front, but asks you to verify your income if you make a claim.
Both types of policy can be increased each year for inflation, but if you're likely to have a rising income, it may also make sense to choose a policy that allows you to increase the sum insured without the need for new applications and medicals.
Income protection policies also come in basic and deluxe versions.
The basic version generally provides you only with income payments while the deluxe version can have add-ons such as paying nursing care or accommodation benefits or paying benefits immediately if you have an accident - rather than insisting on the normal waiting period.
It's also important to understand exactly when you can claim.
All income protection policies include definitions on when you are unable to work.
Some of the cheaper policies, for instance, say you can claim only if you are unable to perform your normal job; other policies will pay if you are unable to perform one or more of your important duties.
Policies also have exclusions - circumstances in which they won't pay - which are worth knowing.
There is also a range of choices to make on issues such as how long you're prepared to wait before making a claim and how long you want the income payments to go for if you do claim.

Is income protection expensive?

Premiums can vary significantly.
As a rule, women and blue-collar workers pay more, though the increase in stress-related claims by white-collar workers has resulted in higher premiums - especially for professionals such as doctors and lawyers.

Can I do anything to cut the costs?

Income protection insurance is tax-deductible, so the costs can be reduced by making sure you claim your premiums in your annual tax return. (But any claims you make will be taxed as income.)
Outside this, the simplest way to cut the premium is to opt for a longer waiting period or limit the period in which you can claim.
Waiting periods can extend as far as two years while income payments can be for as little as a couple of years or up to age 65.
Some insurers will give you a discount if you provide evidence of your income up front, and some offer lower premiums if you agree to a 12-month limit on payments for conditions caused by mental disorders such as depression or stress.
Many people also don't realise that they can insure for less than 75 per cent of their income - maybe insuring the full amount for the first two years and then 50 per cent after that.
Needless to say, you can also cut costs by not paying for extras that you don't think you'll need.
But bear in mind that the real test of the policy comes when you make a claim - paying a few extra dollars for certainty can be better than simply taking the cheapest deal going

Published: Sunday, 1st Aug 2021
Author: Paige Estritori


Business Insurance Articles

Avoiding Underinsurance: How to Adequately Cover Your Growing Business
Avoiding Underinsurance: How to Adequately Cover Your Growing Business
When it comes to protecting the vitality and financial health of a growing business, insurance is a keystone. Yet, amidst the day-to-day hustle of driving your business forward, it's surprisingly easy to overlook the adequacy of your insurance policies - a misstep that can lead to the perilous state of underinsurance. In this article, we will delve into the essential knowledge and strategies to ensure your business is sufficiently covered, shielding it from unexpected setbacks and losses. - read more
Financing Your Business: The Role of Loans and Insurances
Financing Your Business: The Role of Loans and Insurances
Starting a new business is an exciting journey filled with opportunities and challenges. One of the most critical aspects to ensure your venture's success is adequate financing. Whether you're launching a small local shop or a larger enterprise, having a solid financial foundation is essential. - read more
How to Lower Your Insurance Costs Without Sacrificing Coverage
How to Lower Your Insurance Costs Without Sacrificing Coverage
Insurance costs can be a significant expense for businesses in Australia, and it is crucial to understand how they can affect your bottom line. With premiums on the rise, many business owners are looking for ways to cut costs while maintaining the coverage they need to protect their operations. - read more
Business Interruption Insurance: Why It’s Crucial for Small Business Owners
Business Interruption Insurance: Why It’s Crucial for Small Business Owners
Business interruption insurance is a type of coverage designed to compensate businesses for lost income and operational costs when they are unable to operate due to a covered event such as a natural disaster, fire, or other incidents that disrupt business operations. - read more
Essential Insurance Coverages You Need to Protect Your Small Business
Essential Insurance Coverages You Need to Protect Your Small Business
Insurance is a vital component for any small business. It acts as a safety net, helping to protect your enterprise from unexpected financial losses. Whether you run a retail shop, a consultancy, or a manufacturing unit, having the right insurance coverages can make the difference between thriving and merely surviving. - read more

Insurance News

AUB Group's Strategic Acquisition of Prestige Marks Global Growth
AUB Group's Strategic Acquisition of Prestige Marks Global Growth
20 Feb 2026: Paige Estritori
In a strategic move to bolster its international footprint, AUB Group, a prominent Australian insurance broker, has announced the acquisition of UK-based Prestige for $432 million. This acquisition signifies a pivotal step in AUB Group's global expansion strategy, enhancing its presence in the international insurance market. - read more
ACCC Halts IAG's Proposed Acquisition of RAC Insurance
ACCC Halts IAG's Proposed Acquisition of RAC Insurance
20 Feb 2026: Paige Estritori
The Australian Competition and Consumer Commission (ACCC) has recently opposed Insurance Australia Group's (IAG) proposed $1.35 billion acquisition of RAC Insurance. The regulator's decision is rooted in concerns that the merger could substantially reduce competition in Western Australia's home and motor insurance markets. - read more
Business NSW Advocates for Urgent Insurance Reforms to Alleviate Rising Premiums
Business NSW Advocates for Urgent Insurance Reforms to Alleviate Rising Premiums
12 Feb 2026: Paige Estritori
Business NSW, the leading business advocacy group in New South Wales, has raised alarms over the escalating insurance premiums that are placing significant financial strain on businesses across the state. Recent findings from their Business Conditions Survey reveal that nearly 80% of businesses have encountered double-digit increases in insurance costs over the past year, with one in three reporting hikes of 30% or more. These surges starkly contrast with the annual inflation rate of 2. - read more
Australian and New Zealand Insurers Leverage AI to Transform Services
Australian and New Zealand Insurers Leverage AI to Transform Services
12 Feb 2026: Paige Estritori
Insurance companies across Australia and New Zealand are increasingly investing in artificial intelligence (AI) technologies as part of their digital transformation strategies. This shift aims to enhance operational efficiency, improve customer service, and strengthen risk management practices. - read more
IAG CEO Predicts Ongoing Insurance Premium Rises Amid Easing Inflation
IAG CEO Predicts Ongoing Insurance Premium Rises Amid Easing Inflation
04 Feb 2026: Paige Estritori
Australians should brace for continued increases in insurance premiums, albeit at a moderated pace, according to Nick Hawkins, CEO of Insurance Australia Group (IAG). The company recently reported a significant 91% rise in net profit for the first half of the fiscal year ending December 31, 2024, reaching $778 million. This surge is largely attributed to favourable weather conditions and a reduction in claims. ([abc.net.au](https://www.abc.net.au/news/2025-02-14/iag-ceo-nick-hawkins-warns-of-further-premium-increases/104931074?utm_source=openai)) - read more

Your free business insurance quote comparison starts here!
Business Name:
Postcode:

All quotes are provided free and without obligation by a Specialist from our National Broker referral panel. See our Privacy Statement for more details.


Knowledgebase
Insurance Deductible:
the amount that an insured is required to contribute toward an insurance claim as stipulated in an insurance policy. Otherwise known as the "policy excess".