Income Protection Insurance 101

If you become unable to work through illness or injury, Income Protection Insurance could make the world of difference to your family’s finances.

If your income stopped tomorrow, next week or even next month would you worry about bills, loan repayments and making ends meet? Many of us would. Income Protection Insurance can help. We provide some basic information below to help get you started, you can also seek professional advice.

What is Income Protection Insurance?

Financial commitments are part and parcel of daily life, and loss of income due to injury or sickness can have a big impact on our ability to meet them. Luckily, Income Protection Insurance can provide relief1 in the face of the unexpected and give you freedom to recover free from worry.

How much can I receive?

Those insured can receive up to 75% of their usual before-tax monthly income, up to a nominated maximum amount, in the event that they become unable to work.1

Who can apply?

Income Protection Insurance is available to the majority of the working population: ages 18 to 59 years.3 If you are self-employed, a small business owner, a professional or anyone dependent on regular income it is worth considering Income Protection Insurance.1

In the application process, some insurers may not require medical information to assess your eligibility, risk and premium, while others do. It is the policyholder’s responsibility to update an insurer of any circumstances that may have taken place between applying, a policy starting, and making a claim: this could include any changes to employment, income, and health.4

To be insurable, a policyholder may need to prove a stable income, demonstrating 20 hours of employment per week in the 12 months leading up to the policy start date.2

What income is covered?

An income protection payout takes into account the holder’s earned wage only. Income is ascertained on past/current wages and does not account for projected future pay rises. It cannot cover income derived from investments or other assets, nor income from people you hire.3

For those with a fluctuating income – like the self-employed – policies may be established on agreed value or indemnity value terms.3 Agreed value policies reflect the wage agreed by you and the insurer at the time the policy is taken out; indemnity value terms are based on income earned at the time of a claim. Some insurers will review your income history for the past three years and choose the highest paid 12 month period.3

To be insurable, a policyholder may need to prove a stable income, demonstrating 20 hours of employment per week in the 12 months leading up to the policy start date.2

How do I determine the right cover?

When you are determining the level of cover you should consider things like your pre-tax income and your average monthly expenditure on essentials: costs such as loan repayments, education expenses and regular bills etc.2 The cover you select should also fit your budget.

What factors impact the cost of Income Protection Insurance?

Your premium (how much you pay for insurance) will take into account a number of things, including but not limited to: the agreed maximum payout length (benefit payment period), waiting period and benefit amount, your occupation, and personal details such as age, health whether you smoke and any hazardous activities).4

Having Income Protection Insurance can save you from worry in unexpected events

What is a waiting period?

This is the time you must wait before making a claim.1 For Income Protection Insurance policies you can select your waiting period: between 30 and 90 days.1 When considering the waiting period that is right for you, think about your ability to take existing sick, annual and other leave, as well as any money you have already set aside as a buffer for the unexpected.1

What are stepped or level premiums?

You can select a premium to be stepped or level to suit your anticipated financial situation.

  • Stepped premiums increase each year, but begin cheaper. They may be suitable for someone who wants protection at a lower cost in their early working life. When choosing, try and consider how much the premiums will be in 5 years or however long you intend to keep the insurance.5
  • Level premiums don’t change over time due to your age, but they may be adjusted for inflation or insurer fees.5

When can I claim?

Your ability to make a claim will be outlined in your policy documents and is specific to the insurer and policy, as are the entitled benefits.1 Claiming a benefit may require statements from a medical practitioner assessing the illness/injury and ability to work,1 and evidence of income over time.6 All conditions of eligibility and claim requirements are detailed in the relevant Product Disclosure Statement (PDS).

Read the Policy Disclosure Statement (PDS)

As with any insurance or financial product, it is important that you read the PDS. It sets out the terms for your policy. You can ask the insurer about the PDS and you can also seek your own independent advice from a financial adviser.

Income Protection Insurance can play an important role in meeting your financial obligations if you cannot work due to illness or injury, but there is a lot to consider when taking out a policy. If you think Income Protection Insurance is something you need, contact Choosi to compare quotes.


  1. Income ProtectionMoney Smart
  2. Income Protection Insurance: FAQsChoosi
  3. Income Protection for the self employedChoosi
  4. Income Protection Insurance: FAQsChoosi
  5. Life Insurance – Difference between stepped and level premiumsMoney Smart
  6. Income Protection – Making a claimMoney Smart

Posted: 19 Aug 2016

This is general information only and does not take into account your personal objectives, financial situation or needs. You should consider the relevant PDS available on this website prior to purchasing any product. Choosi offers insurance products from a range of brands but does not compare all products available in the market.

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