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Income protection insurance will pay a monthly benefit if the insured is unable to work due to sickness or injury, effectively replacing the income lost. It is designed to enable individuals and families to protect their income and lifestyle, and ensure that they are able to continue to pay the essential expenses that do not cease simply because they are unable to work.

Though income protection should be considered by anyone who works and is reliant on the income they are paid, it may be particularly important for those that need to make regular repayments on loans, those with families that would not be able to maintain their lifestyle if the main wage earner was unable to work, and those that are self-employed. Small business owners and the self-employed may wish to consider business expenses insurance as well as income protection, as it will provide reimbursement for fixed business overheads if unable to work due to sickness or injury.

Benefits of cover

• Protection of income for those who rely on their ability to work
• Provides income if savings are not sufficient to maintain lifestyle
• Provides for repayments on debts such as a home loan or credit cards
• Provides for ongoing expenses, including house bills, rates and school fees

Income protection is available through most of the main life insurance companies in Australia, however all have varying definitions of disability and will provide varying benefits. Generally the maximum insured benefit is up to 75% of gross income, although there may be a maximum limit for specific occupation categories. Policies also have waiting and benefit periods which will affect the premium, as will factors such as age, gender and occupation.

Waiting period

The waiting period of an income protection insurance policy is the length of time after a claim before the payment of income benefits will commence. Depending on the policy and insurer, options typically include 14 days, 30 days, 60 days, 90 days, 1 year and 2 years.

Benefit period

The benefit period is the duration that the insured will continue to receive the monthly benefit whilst ill or injured and unable to work. Options typically include 2 years, 5 years or to age 65, but similarly to the waiting period this will depend on the policy and insurer.

Taxation

Income protection premiums are generally tax deductible, however benefit payments are considered income and as such are subject to tax. If unsure about taxation, features or options, it may be worth obtaining professional advice.