Ultimate Guide To The Basics Of Income Protection Insurance

In case of financial loss, insurance offers peace of mind and a back-up plan. Your vehicles, pets, aircraft, mobile phones, and other properties are insured. One of your most valuable assets, your profits, is often ignored. In addition to covering our other insurance bills, you rely on your income to pay for our mortgage or rent, utilities, transportation, school fees and put food on the table. If you were never able to return to work again, could you fund your retirement? In this article, you will know more regarding Basic information about income protection insurance with iSelect.

What Is An Income Protection Insurance? 

Income protection insurance (sometimes referred to as permanent health insurance) is a long-term insurance package designed to assist you if you are unable to function due to illness or accident. This means that you continue to earn regular income until you retire or return to work. It’s not the same as insurance for critical disease, which pays a one-off lump sum if you have a severe specific illness. It’s not as similar to short-term income protection, which also pays you a monthly income-related amount, but only for a limited period (generally between two and five years) and can cover fewer illnesses or conditions.

  • It replaces some of your income – if you are unable to work because you get sick or disabled.
  • It pays off until you can start working again – or until you retire, die, or the end of the term of the policy – whichever is earlier.
  • Often there is a waiting period before payments begin – you usually set payments to start after your sick pay ends, or after any other insurance starts protecting you. The longer you wait, the lower the monthly bonuses.
  • This covers the majority of conditions that leave you unable to function – either in the short or long term (depending on the type of policy and the concept of disability). You can say as many times as you need as long as the system is going on.

What Are In Need To Be Considered?

Certain factors are in need to be considered, such as the periods of benefit, waiting, agreed value or indemnity, and whether it is super or non-super. So, what are these considerations?

The time of waiting. The waiting period is the length of time from the injury/illness occurrence that you will need to be off work before the insurer starts paying a payout. More generally, people will look at a period of 30, 60 or 90 days, taking into account how much sick/annual leave they have, the income they will draw from, and other revenue streams that can support them in the short term, such as spousal or creditors. It will cost you more for shorter waiting times. Income Protection payments are usually paid in arrears every month.

The duration of benefits. The insurance span is the average length of time you earn any disability or disease benefit. Generally, 2 or 5 years of age or 65 to 70 years of age. In making this decision, people will usually understand their long-term financial commitments. If you have long-standing service loans/hypotheses or a young family, you may choose a longer benefit duration such as 65 or 70 years to cover situations where you may never be able to return to work again. Even those with other income streams or assets that they can liquidate prefer shorter profit periods. It is essential to understand that if you choose a shorter benefit duration, you may not have any benefits if you stay out of work after the benefit period has ended. Many higher-risk jobs can gain only shorter periods of profit.

 Agreed Cost or Allowance. The indemnity contract means the insurer will use your profits at the time of claim to justify the amount you have paid for if you need to claim it. Employees usually take it on a stable income with less risk of dropping their pay, and it is a cheaper option than Agreed Value. You will often show your income by applying for an Agreed Value deal, and in exchange, the insurer will agree to pay you the monthly premium if you have to demand it, even if your income declines. If your compensation is diminished under an Indemnity Contract, your gain will be calculated on up to 75% of the guaranteed income at the time of claim, up to the insured number. People with fluctuating incomes, like the self-employed, may often prefer the consistency of a policy of Agreed Value.

Super or non-super. Income Protection plans can be funded either by you or through a participating Superannuation Fund through a program that you own. By owning the policy yourself, you may be able to have access to better policy definitions and features that can not be offered through Superannuation, which can have an impact on your claim ability. In general, non-superannuation funded premiums are also tax-deductible. Nevertheless, you may be able to support your premiums from a participating superannuation fund via an SMSF or partial rollover. Superannuation is commonly used by individuals as a funding mechanism because they know they need coverage, but may not have the cash flow to pay the premiums.


Income insurance is intended to replace a proportion of your lost earnings due to illness or accident that may require a period out of work. The scheme will give you a monthly income so that you can keep up with all of your first monthly outgoings, such as your mortgage payments and food costs. Mostly, when it comes to income security, there’s no one-size-fits-all approach – the right policy will depend on your needs and budget for you. Take the time, as always, to compare items and ensure that you review in depth the Product Disclosure Statement (PDS).