How to Find the Best Income Protection Insurance Policy
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How to Find the Best Income Protection Insurance Policy

Nora Ackermann

Nora Ackermann

26/03/2021 • 6 minute read

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At some point in your working life, you’re likely to face these fears: What happens if I can’t work for a longer period of time due to health issues? How long will I be able to survive on savings or sick pay from work? Income protection can be a good option to provide security for any worst-case scenarios and give you peace of mind. In this article, we’ll cover everything you need to know and what to look for when deciding on the best income protection insurance policy for you.

What is income protection insurance?

First things first: what is income protection and what can it do for you? Income protection is also called salary continuance insurance. In the event that you are unable to go to work and earn money, your insurer will cover a percentage of your pay until you have recovered and can return to work.

If you’re unable to work due to illness or injury, you’re likely to face some hefty medical bills. With no income at all, this may become a strain. Ultimately, income protection provides you with a sufficient cash flow to cover any bills or payments if you are ever unable to make a living for an extended period of time. This is why the best income protection insurance varies between people, as it’s based on their own unique needs.

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Important points to note:

  • It covers a certain percentage of your monthly income in case of illness or injury
  • It covers most illnesses and injuries that will leave you unable to work short and long-term
  • It pays out until you can work again (for a maximum period stated in your policy)
  • Your payments normally start after your other covers (like sick pay) end*

What does it cover?

Income protection insurance will generally cover up to 75% of your previous income for a period, but never the full amount. Think about it this way: You will have a good incentive to recover quicker while your cash flow is still secured. When choosing a policy, you should think about your current work situation first. Do you have a 9-to-5 job with a set fortnightly income or are you self-employed with a varied cash flow?

The best income protection insurance for you will depend on your work situation and how much you need to cover your bills and expenses. Here are some things to keep in mind when looking for policies:

  • Waiting periods (How long you have to wait before getting paid out)
  • Benefits period (How long you will receive payments for in case of a longer illness)
  • The percentage of your wage that is covered
  • Premium payments (depending on factors like the risk in your job, any preconditions etc.)
  • Pre-existing conditions have clarity around what constitutes a pre-existing condition

Can I still get agreed value income protection insurance?

If you are self-employed and your income is likely to vary over the course of the year, you used to be able to take out an agreed value income protection policy. These policies were a little more expensive but would pay out a set amount in case you weren’t able to work. Unfortunately, these policies stopped after 1 April 2020.

Is there anything that won’t be covered by income protection insurance?

The price of your premium depends on the job you are doing and the level of risk that may be involved. There are certain jobs that won’t be covered by income protection insurance at all. If you work at certain heights, off-shore or at high speeds, you may have to shop around a little to find the right income protection for your profession.

If you are self-employed, be mindful to always write bills for any job that you are doing. Cash in hand jobs won’t be considered as part of your income as you won’t be able to prove them.

Things to consider when choosing your policy

When weighing up the best income protection insurance for you, there are a few things you’ll need to consider. It’s highly likely that your monthly expenses go much further than just paying for rent and food. So, when thinking about which policy to get, you should consider your monthly expenses and how a longer period of not being able to work may affect your ability to pay for:

  • Any debts you may have (mortgage, loans etc.)
  • Investments and assets you may have to look after
  • Taxes
  • A spouse or any dependents that rely on your funds

When looking for the right policy, you should make sure that you compare the market. What’s best for you depends on your budget, current job, age, and what additional features are important to you.

How much does income protection insurance cost?

There are various factors that determine how much income protection insurance will cost you.  You may choose your policy based on the maximum cover and the benefits period and this will be reflected in the total cost. Your age can also play a significant role – the older you get, the more expensive your policy will become. Any existing health conditions may increase your premium costs or – in some cases – may exclude you from certain offers. The assessment of your current health may also include questions about your smoking habits over the last 12 months. Smokers may pay more in premiums.

One of the biggest factors that will impact the cost of your policy is your current occupation and if it is linked to any high-risk activities. It’s much easier to find a good policy that covers a desk job than if you engage in action sports or put yourself at risk of injury on a frequent basis.

Additionally, your waiting period will make the policy more or less expensive. The shorter the waiting period, the higher the policy will cost. Speaking of waiting periods, it’s important to know that your first payment will be made 30 days after your waiting period. If you choose a waiting period of 30 days, you will receive your first payment after 60 days – this is important to take into consideration when calculating how long you can wait.

What is the difference between income and loan protection insurance?

There are multiple options for you to ensure that your ongoing bills are covered while you are unable to work. While income protection will cover around 75% of your actual income (depending on your policy), loan protection insurance will only cover your loan repayment amounts. This ensures that you won’t lose any assets or accumulate additional debt in late payment fees. However, it won’t cover any other bills outside of your loan repayment obligations.

Mortgage protection insurance is another option to look into if you mostly care about your debt repayments but feel like you have enough money in the bank to cover any additional expenses while recovering from an illness.

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Pro tip!

Depending on your situation, you may find that one of these alternative insurance covers may be better suited to your needs. Ultimately, ensure that you research your options carefully before making any final decisions.

Find out more

Enjoyed this article on income protection insurance? Well then make sure you check out some of our other articles on the topic. We’ve covered everything from whether you need income protection to whether or not it’s tax deductible.

You may wish to also check out the Australian Prudential Regulation Authority(APRA) for more information, especially in light of their 2020 changes.


*The information about income protection insurance provided on this page is general knowledge only. It does not consider your financial situation or needs and is not intended as advice. You should always carefully consider the relevant Product Disclosure Statement before making a decision concerning an insurance product. Please see our Terms of Use on this site for more details.

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Nora Ackermann

Written by Nora Ackermann

Nora Ackerman is a contributing writer at Oiyo, specialising in personal credit. Nora originates from Germany and holds a Bachelor of Arts from Karlsruhe Institute of Technology and a Master of Arts from the Humboldt University of Berlin. She has extensive experience across the communications and journalism sectors, with her work being published in a number of German publications.

More about Nora Ackermann

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