If you’re not able to work for a while, income protection insurance can pay you part of your income to help make ends meet. This kind of insurance doesn't cover every situation, but it’s designed to help people at their most vulnerable — when sickness, injury, or the unexpected happens.
Every insurer and policy is different, so there’s plenty to consider. We’ve gone over a few important things to investigate below, to help you make the most informed decision possible. If in doubt, you can reach out to us for a more personalised look at how a policy might suit you.
What is income protection insurance?
Income protection insurance protects you against unexpected events that put you out of work. With it, your insurer can provide you up to 85% of your regular income if you become sick, injured, or otherwise unable to work. It’s designed to give you some peace of mind and reduce financial stress.
When comparing policies, there are four main things to consider:
- The percentage of your income that will be covered
- How long you will have to wait before your payout begins
- How long you will receive payments for if you make a successful claim
- How much you will pay for your premiums as time goes on
You can read more about these income protection insurance policy options here, including how they affect your premium and payout amounts.
Who is income protection insurance suited to?
Most of us rely on income from work to pay the bills, feed ourselves, take care of our families, and keep a roof over our heads. If working becomes impossible and that income dries up, those bills and expenses usually don’t go away too. If all or most of your income comes from work, income protection insurance may be a way to help alleviate some financial stress.
Safety nets like Medicare or private health insurance can help cover medical costs, while workers compensation can help if you’re injured on the job. However, neither of these are designed to cover your regular expenses like utility bills, mortgage repayments, or school fees over the long term.
When you work for someone else, there are work entitlements like annual leave, sick leave, and long service leave to help you out during unfortunate circumstances. These are often designed to support someone for a few weeks, while income protection insurance can potentially support a policyholder for months or years depending on the policy.
When you’re self-employed, you may not have any entitlements to sick leave or annual leave — so no work means no income. For this reason, income protection insurance is more common among people who work for themselves in their own small business, or as contractors. Income protection insurance can provide some reassurance that not working for while won’t result in immediate financial hardship.
What’s covered under income protection insurance?
Every insurance policy is different, but a few circumstances that may be covered include:
- A partial or total disability that prevents you from working
- Extended sickness or injury that leaves you unable to work
There are a few extra circumstances which might be covered by an insurer, but every policy is different. As always, it’s important to check the conditions on any policy carefully and only choose the one which best suits your needs.
Can I get income protection insurance for redundancy?
Some policies will cover you for being made redundant, but not all. There are also policies out there that will cover you for being dismissed unfairly, losing your job due to your employer going into administration, or being terminated before a fixed-term contract is up.
Will I be covered by income protection insurance if I quit my job?
In general, no. Quitting your job won’t be covered by income protection insurance.
Will income protection insurance cover me if I become pregnant?
No, you won’t be covered for lost income if you become pregnant.
How much income protection do I need?
While there aren’t any fixed rules on how much you’ll need, a good place to start is making a budget plan to see what your income and expenses look like every month. Income insurance can provide up to 85% of your income, but you can choose to receive a smaller percentage if you like. When working out how much coverage to pay for, it may be helpful to work out what the minimum amount is that you would need to meet utility bills, mortgage repayments, and other essential expenses.