Income protection insurance in Australia offers you a monthly income if you become sick or injured for an extended period of time. The funds from an income protection insurance benefit payment can be used to pay rent or mortgage and living expenses while you focus on getting better.
How does income protection insurance in Australia work?
In the event you become sick or injured, income protection insurance will pay up to 75% of your income. This benefit payment continues until you are able to return to work or the maximum benefit period, as outlined in your income protection insurance policy, has been reached.
Are income protection insurance premiums tax deductible?
In Australia, income protection is generally tax deductible. So you can claim back your premiums, either full or in part, depending on whether the policy is stand-alone or bundled. For specific tax claim amounts, please speak to your tax agent.
What types of income protection insurance policies are available in Australia?
There are three main types of income protection in Australia. These include indemnity value, agreed value, and guaranteed agreed value.
1. Indemnity value – benefit is assessed on income at claim time
If you were to make a claim you would need to provide financial documents to prove your current income. If your income is reduced after you take out the policy, you go part time, change jobs etc., your benefit payment will also be reduced. This type of cover tends to be slightly cheaper than the other types of policies available.
2. Agreed value – benefit is assessed on income at application time
If you were to make a claim you would need to provide financial documents proving your income at the time you took out the policy. Your benefit payment remains the same, regardless of whether your income is reduced after you took out the policy or not.
3. Guaranteed agreed value a variation on the agreed value policy
If you were to make a claim against this policy it would be financially assessed with all corresponding financial evidence before the policy is issued. In certain situations benefit payments may be guaranteed without financial evidence being required, for example a graduate with qualifications that correspond with a certain salary level. This type of cover is only offered by a select number of insurers in Australia.
How do you compare income protection insurance quotes?
There a number of factors affecting the cost of a premium including :
- The selected waiting period or the length of time (days) you are willing to wait until benefits begin to accrue. Generally, the waiting periods range from 14, 30, 60, 90, 180, 360, up to 720 days. The shorter the waiting period, the more expensive your premiums will be.
- The benefit period selected or the length of time you would opt to receive the benefit payments. These are generally 2 years, 5 years, and until age 65. Generally, the longer the benefit period selected, the higher the premium because the policy will pay you for a longer period of time our of work.
- The type of policy selected – see above. Agreed value and guaranteed value policies are often 10% higher compared to indemnity value types, however there are some situations where the benefit of a certain policy type outweighs any additional costs.
- Your occupation – if you are employed in a hazardous occupation then an insurer may increase the cost of your premiums, compared to an office worker, due to the increased level of risk.
- Your smoking status – as with life insurance, if you are a smoker then chances are your income protection premiums may be higher due to the many health risks associated with smoking.
- Your age – premiums increase with age. A younger person will generally pay lower premiums compared to an older person.
- Your income – the higher your income, the higher the premiums.
- Your gender – women will generally pay slightly higher premiums than men. Why? Extensive research undertaken by insurance companies has shown women are more at risk or suffering from injury or illness compared to men.
Who should have an income protection insurance policy?
Everyone. Income insurance is especially important for the main breadwinner of a household and or for those families without the funds needed to cope if the breadwinner could not work for a period of time. Anyone with a mortgage or property investments would also benefit from income protection as it can help ensure any investments are protected if you are unable to work.