Income Protection Insurance | All you need to know!

Income Protection insurance within Australia will provide you with an income stream if you unable to work due to an accident or sickness.

Sounds simple enough, but this insurance would have to be one of the most confusing insurance policies you could ever purchase! And having to compare income protection insurance quotes online, given there are various offers throughout the Australian Life Insurance market makes this task even more difficult!

We will aim to explain the various features and benefits to you in an easy to understand simple english style so you can shop online.

Alternatively please feel free to call one of our advisers who will be more than glad to help.

How does Income Protection insurance work?

Income Protection Insurance provides you a monthly benefit (usually 75% of your income) should you become unable to work due to a sickness or accident. Should you need to claim, the Life Insurer will pay you the monthly benefit until you start work again or until the benefit period expires.

You can choose from a 1, 2, 5 or 6 year benefit period, or now you can receive benefits right up to age 70. In the past you could also purchase Lifetime Income Protection Insurance benefits although these policies are now discontinued.

Income Protection provides protection for you 24 hours a day 365 days a year anywhere in the world. Although if you do suffer an injury or sickness overseas most Australian insurers will only pay you in Australian dollars.

How do I structure my Income Protection insurance policy?

Now this is what separates the men from the boys, or should I say, an experienced and specialist Life Insurance broker to a novice? Income Protection Insurance has so many variables it’s not funny, but structure it correctly and you can save a small fortune!

We always recommend that you protect all possibilities. That is, purchase a policy with the lowest waiting period, the longest benefit period and the most comprehensive features and benefits!

That’s a given, buy the best!

But like most of us there is limit to what you can spend so if you wish to buy a cheap Income Protection Insurance protection policy, you may consider a structured and / or tailored policy. Although beware, Income Protection Insurance is complex so we do recommend you seek out specialist advice.

Case example of structured Income Protection policies

Example 1: Split benefit policy

This provides different policy features for when you need them most. For example, it’s cheaper to have a Plus or comprehensive policy for the first 2 years of benefit, including agreed value with a standard policy and indemnity benefits till age 65. This combination can save you 20% on your premiums! The idea here is you will never need “Plus” features after 2 years so why pay for them?

Example 2: Buy your Income Protection cover in Superannuation with split benefits

This is great, as you can use your super to fund the premiums and get a tax deduction on contributions paid to your super fund, let’s say up to your marginal rate of 30%. Your super fund (not all funds do this, ask your adviser or fund manager first) will claim the premiums as tax deduction and your individual super fund gets another 15% back. So that’s a total of 45% back. Not too bad!

Although if you want those “Plus” features like trauma benefits in your Income Protection policy you cannot buy this in your super fund. Another idea is to self own a Plus policy for the first 2 years then purchase another policy to age 65 in your super fund.

Example 3: Need to be covered immediately but can’t afford the premiums for a 14 day wait?

Then buy an Income Protection policy with day 1 accident cover, plus a comprehensive extra benefits that has specified schedule benefits, trauma or crisis cover built in, plus bed confinement benefit.

That way if you have an accident or suffer an illness and you are admitted to hospital straight away and remain there for 3 days or more, you will be paid each day you are in hospital up until the waiting period which can be up to 90 days. Or if you suffer a heart attack or cancer, the most common claims we experience, then you will be paid 6 months wages or benefits. So that’s also full cover from day 1 – no excess!

Of course if you suffer an accident and can’t work from day 1, as long as it’s for 3 consecutive days you will be paid your Income Protection benefits immediately.

Although there are various combinations which are too numerous to mention here, only an experienced adviser can recommend and tailor this structure for you.

Who needs Income Protection Insurance and why?

If you couldn’t afford to be without an income for an extended period then it makes sense to insure yourself should you suffer from an accident or sickness. Especially if you were off work for an extended period. For most, it makes sense to pay a small tax deductible monthly premium to replace your income for the long term, should the unthinkable happen. Essentially we recommend you self insure the small risk and outsource the big risks by paying a small known premium.

Can everybody purchase Income Protection Insurance?

Well that depends on your occupation and your health both past and present. As you can appreciate, different occupations pose different risks. Some roles have little or no risk, let’s say an office worker, and premiums will be low. Whilst an armed security guard or Australian Air Force pilot significantly pose a higher risk of becoming injured and may be offered a policy, although with a higher premium.

Given the ongoing changing nature of the Life Insurance industry it makes sense to still enquire online if you have a high risk occupation, as insurers may still offer you some insurance terms even if you have been declined Income Protection Insurance in the past.

Likewise the same applies to your medical history. It’s important when applying for your Income Protection Insurance to fully disclose your previous medical history, full medical disclosure will provide a complication free claim. This way you know your policy will work 100% of the time.

In some cases life insurers will offer you a policy either at standard rates, or with a loading (increased price to cover the increased risk), exclusion, or issue a policy with a limited term.

In most cases given our size, reputation and over 20 years of experience we can arrange some terms so make sure you apply online or call one of our representatives.

How much Income Protection Insurance can I have?

Well this really depends on what income you generate from your own personal efforts. This is usually your salary but can vary depending on your employment situation, whether you are an employee or are self employed.

We have provided an easy to use Income protection insurance calculator to help you determine the correct amount. Once you have determined the amount you can apply for, you can usually have up to 75% of your income or up to $60,000 per month for those high income earners.

How do I claim Income Protection Insurance benefits?

Claiming Income Protection Insurance is a simple enough process. One phone call to your adviser at CCA Financial Planners and we will arrange all the necessary forms, liaise with your doctor and accountants if needed, and we can even arrange for a nurse to visit you to complete the necessary forms.

We call this our Priority claims process and is available to you when you purchase a policy through us.

A quality Income Protection policy provides a guarantee of non cancellation, that is the insurance company cannot cancel your policy irrespective of how often you may claim . This is different to car insurance for example, which can be cancelled if you have too many accidents! But unlike a car, once we have a medical history you may find it harder to purchase a comprehensive Income Protection policy, or worse still you may not be able to purchase a policy.

So we always recommend you purchase a quality Income Protection Insurance policy which has recurrent claims. Which simply means should you suffer a sickness or injury and the same condition reoccurs within 12 months (varies across insurers), then the insurer will waive the waiting period.

What’s the definition of insurable income under an Income Protection policy?

This is usually the same across insurance companies but varies whether you are an employee or are self employed.

Employees:

Insurable Income is the income you earn by your own personal efforts before tax is deducted. A simple rule to follow, if you can trace your income on paper we can insure it! It includes your total salary package which can be made up from the following:

• salary
• wages
• fees
• fringe benefits
• regular commissions
• bonuses
• overtime payments
• and superannuation

Need help calculating what Income Protection benefit you can purchase? See our easy to use Income protection insurance calculator.

Please note insurable income does not include any investment or interest income unless of course that’s the business you are in, for instance a stock broker.

Self Employed:

For the self employed the income definition most insurers use is “personal exertion” income as above but also includes:

Your business income directly due to your personal efforts plus any add backs. See our easy to use Income protection calculator which includes most approved add backs (by Australian Life Insurance companies). A few of these are as follows:

• Deprecation
• Donations/ Gifts
• Salary
• Directors fees
• Superannuation
• Income split salary with spouse
• Income split super with spouse
• Motor vehicles
• Loss on sale of asset
• Domestic interest
• Fines
• Plus of course, the add backs as an employee

But when applying for your policy please make sure to highlight any other income you think is really due to your personal efforts.
Note: insurable income does not include investment, interest income or business income, that you will continue to receive if you are unable to work due to a sickness and/or an accident.

Who should own my Income Protection policy?

Again that really depends on your situation. For most it makes sense that the individual insured receives the benefits, so you should own your policy.

Self owned policy is the norm, that is you will get paid the monthly benefit.

From a tax point of view, Income Protection is usually tax deductible whether you own the policy and/or a company.

Although your policy can be owned by your company and/or a family trust – either way no fringe benefit tax is payable.

You can now own an Income Protection policy through your super fund. This is great news if you are short of cash. But there are limitations.

Remember this can be very complex so you may prefer to seek out professional help form a Financial Planner. CCA Financial Planners are experienced advisers and we will consider all issues when recommending who owns your Income Protection Insurance policy.

How much does Income Protection cost?

Or as the saying goes how long is a piece of string? Well that depends on what benefits you choose. Premiums will vary immensely not only from insurer to insurer, but on your individual circumstances and the level of protection you require. Although as a rule of thumb you can expect to pay up to 2% of your income.

Individual premiums vary on the following:

• Age – premiums usually increase with age but you can lock premiums in using level life insurance
• Gender – Income Protection for males is generally cheaper than that for females.
• Medical history – no history discounted rates, unfavorable history, and you will pay a higher rate and/or be offered a less favorable policy. See declined life insurance for more information.
• Whether you are a smoker or non smoker – this means if you have had a smoke in the last 12 months you will usually need to pay double the rate of a non smoker. Some underwriters consider a cigar at Xmas as a non smoker, so make sure you disclose how much you do smoke.
• Occupation – Of course high risk occupations will need to pay a higher premium for the extra risks.
• Waiting period – is the excess you need to pay with time. That is you can choose a 1,3, 14,30,60,90, 180 day wait right up till 2 years and the shorter the time the dearer the premium.
• Benefit Period – this is the time frame in which you want to be paid benefits. You can choose from a 1, 2, 5, or 6 year period, or until age 70. Of course the longer the benefit period the dearer the premium.
• Get Advance payments – when you need it most during the waiting period. This will increase your premiums like day 1 accident cover and day 3 bed confinement cover.
• Accommodation benefit – if you are more than 100 km away from home.
• Double Income benefits – for trauma conditions like being diagnosed with cancer or having a heart attack.
• Lump sum benefits for specified injuries – advance payments up to 60 months is available depending on the injury.
• Rehabilitation benefits – receive extra care to get you working sooner.
• Home Assist and transportation benefits – to help you cover those extra expenses like a flight home.
• Booster benefits – receive up to 100% of your income in the first 3 months of claim.

When will the insurance company pay my Income Protection benefits?

To qualify for an income protection insurance benefit the insurance company will use the following income protection claim definition. This is the most common definition used in the market place today:

1. Seeing a Doctor because you are sick or have had an accident
2. Not working
3. And can’t do at least one important duty of your own occupation

Some Life Insurance companies are now also offering an ‘hours’ based definition. This means you can still work up to 10 hours per week and they will pay you your full Income Protection benefit without any offsets from the income you generate in that 10 hours. Of course these premiums will be dearer in most cases.

Once your claim has been approved they will pay your benefit 30 days in arrears – in most cases.

What’s new for Income Protection Insurance? – product developments

Australian Income Protection Insurance has a history of features and benefits being improved. This great news for the consumer. Insurance companies are always trying to outdo each other in improving their various features and benefits to attract a larger slice of the insurance market.

For the latest updates see or latest news section and/or see the individual web page we have dedicated for each Australian life insurer. Our complete list can be seen on the left hand side of this web page.

Compare Income Protection Insurance

Who offers the best Income Protection Insurance in Australia today?

As with anything that relates to Income Protection – this varies greatly. In fact some of the older types of policies are the best – for instance you can no longer buy a policy with an Income Protection cover that comes with a lifetime benefit, so if you have one of those – HANG ON TO IT! Remember, a quality Income Protection policy cannot be cancelled by the insurer.

But for the rest of us, we offer a free online Life Insurance Broking service that can compare Income Protection policies from Australia’s leading Life Insurers. Here is a sample of policies we have compared in the past.

But as Income Protection insurance specialists and Financial Planners our service is not limited to just current policies. We can also compare Income Protection Insurance policies that are old and discontinued. Just enter your details in our income protection insurance quote and we will provide you a quote and comparison so you can make an informed choice.

Remember to include any additional information you may want us to consider when preparing a income protection insurance quote for you.

Occupation Specific Income Protection

Income Protection Insurance for farmers

Income Protection Insurance for self-employed

Income Protection Insurance for Newly qualified medical professionals

Income Protection Insurance for Doctors

Income Protection Insurance and Tax Benefits

Income Protection Medical Professionals

Income Protection Insurance for Tradies

Income Protection Insurance Claims Definition

Redundancy Insurance Cover