As an Australian breadwinner, you must ensure your dependents can live well. Unfortunately, unexpected events, such as accidents in the workplace, can cause you to lose your income for months. Therefore, you need income protection insurance Australia to help you face the unexpected.
Some people already get income protection through super funds. However, you must purchase it if you don’t have it yet. You can buy this insurance from an insurance company, broker, or financial adviser.
What is Income Protection Insurance Australia
Income protection insurance is a financial product that protects the insured against financial loss caused by his inability to work. This insurance replaces some parts of the insured’s income while he recovers from illness or physical injury, such as partial/total disability.
As a result, having this insurance will allow you to pay bills and meet your and your dependents’ needs while you cannot work and don’t have an income.
1. Income Protection Insurance Coverage
The coverage of income protection insurance depends on your policy. Some insurance companies cover a higher percentage of income. However, other insurance companies replace a lower percentage of income. Below are several coverage options you may get.
- The maximum coverage is 90% of the pre-tax income in the first 6 months plus 70% of the pre-tax income during a specific period after the first six months.
- The insurance covers up to 70% of income or up to $10,000 per month.
- The maximum coverage is 70% of income or up to $30,000/month.
- The insurer pays up to 75% of income.
2. Income Protection Insurance Policy Types
You can choose one of the two income protection insurance policies when you shop for this insurance. Below are the policy types of income protection insurance Australia.
- Agreed Valued Policy: This policy allows you to get a percentage of a settled amount of income when you sign up for the income protection insurance policy. This policy is ideal for you who have up-and-down income year by year.
- Indemnity Value Policy: The coverage amount of this policy is the percentage of your income when you make a claim. The downside of this insurance policy is you may get lower monthly payments if your income decreases.
3. Claim Waiting Period
The claim waiting period is a period before you can receive your claim. For example, you need to wait for 14 days to get your monthly replacement payment. You will not get this payment if you recover from your illness or injury before the 14 days are up.
However, you will be eligible for the payment if you are unable to work after 14 days of a recovery period. Insurance companies usually offer several options for waiting periods. You will get affordable premiums if you choose a longer waiting period.
4. Claim Benefit Period
The claim benefit period is the period of the monthly payments last if you cannot go to work due to physical injuries and illness. Some policies offer two to five years of benefit periods. Other policies offer a benefit period based on age, for example until the policyholder is 65 years old.
Who Needs Income Protection Insurance
Not everyone needs income protection insurance Australia. However, other people have special conditions that cause them to have this insurance. Who are they?
- Those who are small business owners or self-employed.
- Those who have big debts that they need to pay even when they don’t have an income.
- Those with dependents or family members who rely on their income.
Factors Affecting the Costs of Income Protection Insurance in Australia
The costs of income protection insurance depend on various factors. Some of these factors are age, pre-existence medical conditions, lifestyle, and types of jobs. Aside from those factors, the following factors also affect your income protection insurance cost.
- Pre-tax Income: Those who have a higher monthly income when signing up for the income protection insurance policy will pay higher insurance costs per month.
- Gender: Female workers typically pay higher income protection insurance costs per month compared to male workers.
- Claim Waiting Period: Shorter claim waiting period will increase the monthly insurance cost.
- Claim Benefit Period: Longer claim benefit period will make the monthly insurance cost more expensive.
The Average Cost of Income Protection Insurance in Australia
How much is the average cost of income protection insurance in Australia? Below are examples of the average cost of income protection insurance for a non-smoking and healthy accountant aged 35.
| Pre-Tax Monthly Salary | Monthly Insurance Cost (Female) | Monthly Insurance Cost (Male) |
| $5,000 | $87 | $75 |
| $8,000 | $139 | $120 |
| $4,000 | $70 | $60 |
| $6,000 | $105 | $90 |
Best Income Protection Insurance in Australia
You can find many income protection insurance companies in Australia. However, some of them offer better protection than others.
1. TAL Income Protection Insurance
TAL income protection insurance is not only the most recommended one, but it is also more affordable than others. The average monthly cost of TAL income protection insurance is $81. It is $45 lower than the average.
In addition, this insurance also pays high monthly replacement income, i.e., up to $30,000 per month or 70% of your salary. Moreover, it offers a flexible claim waiting period ranging from 2 to 13 weeks. You can choose a 13-week waiting period if you want to lower your premium.
2. Insuranceline Income Protection Insurance
Insuranceline income protection insurance may not be the most affordable plan. However, it offers a higher monthly payout. It pays 75% of your monthly income when you are unable to work.
Another great feature of this insurance is it pays your replacement income for up to 5 years. Therefore, you can get better protection from this insurance.
3. AAMI Income Protection Insurance
AAMI Income protection insurance covers 75% of your monthly salary. The best thing about AAMI is that it covers pre-existing conditions and mental health conditions.
Therefore, policyholders who cannot work due to these conditions will still be able to get their monthly payout for up to 2 years. Moreover, this insurance company also offers a long benefit period.
Income protection insurance Australia is an ideal financial protection for small business owners or those who have big debts or dependents. It will protect them from financial loss caused by inability to work resulting from illness or injury.