Income Protection

Income protection insurance in Australia is designed to offer you a monthly income if you were to become sick or injured for an extended period of time. The funds from an income protection insurance benefit payment can be used to pay for your rent or mortgage, and also your living expenses while you focus on getting better.

How does income protection insurance in Australia work?

In the event that you become sick or injured, income protection insurance will pay up to 75% of your income. This benefit payment continues until you are sufficiently better to go back to work again or up until the maximum benefit period as outlined in your income protection insurance policy.

Income protection insurance premiums are generally tax deductible

In Australia, income protection is generally tax deductible. This means that you can claim back your premiums either in part or in full, depending on whether your policy is a stand-alone or bundled one. For specific tax claim amounts, please speak to your tax agent.

Types of income protection insurance policies 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

This is where your policy is financially assessed at claim time. This means that at claim time, you will need to provide financial documents to prove your income. If your income is reduced after you apply for income protection insurance, 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

This is where your policy is using your income at application time. This means that you will need to provide financial documents at application time, rather than at claim time. It also means that your benefit payment amount will remain the same, regardless of whether your income is reduced later on or not.

3. Guaranteed agreed value

This is a variation on the agreed value policy type. This type of policy is financially assessed with all corresponding financial evidence before the policy is issued, and in certain situations benefit payments may be guaranteed without financial evidence being required, such as for 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.
The type of policy you should have depends on your particular situation and personal needs. If you are in doubt, speak to an xLife insurance adviser.

How to compare income protection insurance quotes

There a number of factors which contribute to the cost of your premiums. They include things like:

  • The waiting period selected – this refers to the length of time you are willing to wait until the benefits begin to accrue. Generally speaking 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 – this refers to the length of time you would like to receive the benefit payments. These are generally 2 years, 5 years, and until age 65. Generally speaking, the longer the benefit period selected, the higher the premiums as it will pay you for a longer period should you be unable to return to work.
  • The type of policy selected- as mentioned above, there are three types of policies in Australia. Agreed value and guaranteed value policies are often 10% higher compared to indemnity value types, however there are some situations where a certain policy type is far more beneficial despite the additional cost.
  • 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 – as you grow older, your premiums will also grow higher as you age. This is why a younger person will generally pay lower premiums compared to someone much older.
  • Your income – the higher your income, the higher your premiums will be. This is simply because the sum insured is higher due to your higher income.
  • Your gender – women will generally pay slightly higher premiums than men. This does not mean that an insurer is biased. It is a result of extensive research undertaken by life insurance companies, which show that women are more at risk or suffering from injury or illness compared to men.

Who should have an income protection insurance policy?

If you are the main breadwinner, or do not have sufficient funds saved in the event that you cannot work for a period of time you are dissatisfied with, then income protection insurance is vital. Those with a mortgage or property investments would also greatly benefit from being covered by income cover, as it can help ensure that your investments are protected.

Advice on income protection insurance Australia wide

The amount of coverage and type of policy you need will vary from person to person. To help ensure that you have the right type of policy and are covered for the correct amount, speak to an xLife adviser. An xLife adviser can compare income protection insurance Australia wide and offer you free income protection insurance quotes so you receive the most suitable policy for your situation.

April 2011