Income Protection Insurance Advice

Income protection insurance, sometimes also called disability insurance or salary continuance cover, typically replaces up to 75% of your monthly pre-tax income if you’re unable to work due to illness or injury.

Income protection insurance premiums vary depending on your occupation, health, and the structure you choose. 

Rather than a single lump-sum payment, benefits are paid as regular monthly payments, which makes them well-suited to covering ongoing costs like your mortgage, school fees, and everyday bills while you recover.

On the policy, you’re referred to as the life insured, since the cover is built around your ability to generate income rather than a fixed asset. It’s different to health insurance, which covers medical treatment costs, and different again to workers’ compensation, which only applies to work-related injuries. Income protection insurance covers illness and injury, whether they occur on the job or off the job.

It’s also worth knowing that income protection isn’t designed for permanent disability, and unlike life insurance, it doesn’t include a terminal illness benefit, since it’s built around an expectation you’ll eventually return to work. If you were permanently unable to work, that’s typically covered by total and permanent disability (TPD) insurance or a life insurance policy, both of which pay a lump sum rather than an ongoing monthly income. 

Many policies also include a partial disability benefit, which provides financial support if you can return to work in a reduced capacity rather than full duties.

Indemnity versus agreed value policies

Income protection insurance policies are generally structured as either indemnity value policies or agreed value policies. Indemnity value policies calculate your benefit based on your income at the time you claim, while agreed value policies lock in your income protection cover based on your income when you applied.

Which one suits your personal circumstances depends largely on whether your income is steady or likely to change.

Waiting periods and benefit periods

Your waiting period is the time you must wait after becoming unable to work before benefits commence, and it’s commonly available in 14, 28, 60, or 90-day options, depending on the insurer. A longer waiting period generally means lower premiums, provided you have savings or leave entitlements to cover the gap. 

Every income protection policy sets these details out differently, so it’s worth comparing rather than assuming they’re all the same.

Your benefit period is how long your monthly benefit can continue if you remain unable to work, and insurers set a maximum benefit period that ranges from a couple of years to a specific age, such as 65. 

Premiums can also be level, stepped, or variable, and this interacts with whichever waiting period and benefit period you choose, so we’ll help you balance affordability against the financial buffer you already have.

Income protection in Australia: inside or outside super

Income protection insurance can often be held inside your superannuation fund, which can help with cash flow since premiums come out of your super balance instead of your take-home pay. It’s not automatically the cheaper or better option, though, so we’ll walk you through the trade-offs for your circumstances.

Income protection insurance and tax

As a general rule, income protection premiums are tax-deductible when the policy is held outside super and paid from your take-home pay, since the ATO treats them as a cost of protecting your assessable income. 

If your premiums are paid through your superannuation fund instead, you generally can’t claim that tax deduction personally, since the fund pays the premium rather than you.

Many superannuation funds automatically offer some level of default income protection cover, which is worth checking before assuming you need to arrange it separately. Income protection benefits and any benefits paid to you are treated as assessable income and need to be declared in your annual tax return, so it’s worth talking to your accountant about how this fits your broader tax position.

Before you buy income protection insurance, it’s worth working out how much income protection actually suits your situation, rather than accepting a default amount. There’s no single answer to how much cover you need, since it depends on your income, your debts, your family, and your broader financial situation.

When you apply for income protection insurance, insurers will ask about your medical history, including any pre-existing medical conditions, as well as your occupation and lifestyle. Being upfront about your personal circumstances at this stage matters, since gaps or inaccuracies can affect a claim years later. We’ll help you work through what needs to be disclosed and how to present it clearly.

Making an income protection claim

Every income protection insurance policy sets out how claims work in its Product Disclosure Statement, along with a Target Market Determination describing who the policy is designed for. Insurers offering these products commit to the standards set out in the Life Insurance Code of Practice, which covers how claims should be handled and communicated.

If you ever need to claim income protection, we’re here to support you through it. Our advisers will:

• Review your policy to confirm you can claim income protection insurance without unnecessary complications
• Liaise with the insurer on your behalf to avoid unnecessary delays
• Help you gather the evidence and documentation required
• Keep you updated until you start to receive payments

Continuing to receive your benefit requires maintaining contact with your treating doctor and the insurer, since ongoing eligibility is reviewed over time. Once approved, your benefit payment is designed to ease the financial pressure of medical expenses and everyday bills while you’re off work. 

Handled well, income protection payments and the resulting income protection payouts can be the difference between coping financially and falling behind while you recover.

Protecting your income is part of our broader Achieve More approach: helping you build the financial security to keep making confident choices, whatever life throws at you. 

Elliot Watson has been providing financial advice since 2007 as a Certified Financial Planner, the highest global standard in the profession, and our team has been recognised with the RI Practice of the Year and the RI Risk Practice of the Year awards.

Our team has grown steadily over the years, but the way we work hasn’t changed. We look across the market rather than defaulting to one insurer, so the income protection we recommend is tailored to your occupation, income, and what you actually need it to cover. 

If you’d prefer to start with insurance rather than a full financial plan, our dedicated Insurance Only service lets you get proper income protection advice on its own, with the option to broaden things out later.

Once your cover is in place, we don’t disappear. We review your income protection as part of an ongoing relationship, checking that it still matches your job and circumstances, and that if you ever need to make a claim, you’re dealing with the same advisers who set the policy up in the first place.

We work with clients across Newcastle, Maitland, Singleton, the Central Coast, and the Hunter Valley, with virtual consultations available for clients further afield. If you’re also weighing up life insurance, our life insurance page covers how that cover works alongside income protection. 

How do we compare to an income protection broker?

An income protection broker usually focuses on finding and selling you a policy. We do compare income protection insurance across multiple insurers, but we also look at how that cover works alongside your super, your debts, and your longer-term plan.

As part of that process, we help you work through underwriting honestly and thoroughly, since a policy backed by accurate medical history is far less likely to run into problems if you ever need to claim income protection insurance. 

We also help align your waiting period with any sick leave or savings you have, so there’s no gap in your income, and we check that the definitions in your policy match your actual occupation and duties, not just your job title.

This means you’re not left coordinating advice from a broker on one side and a planner on the other. One team looks after the whole picture, so your income protection insurance complements the rest of your financial plan rather than sitting apart from it.

How we help you choose the right income protection insurance

We compare income protection options from multiple insurers as part of the broader financial service we provide, so you’re not stuck with whatever your super fund happens to offer by default. Your occupation, income, health, and lifestyle all affect your premiums and the type of cover available to you.

If you’re self-employed or run your own business, we’ll also help you work out how to prove your income to insurers, since this often needs more evidence than a standard payslip. We also look at how your income protection insurance fits with your other cover, like life insurance or TPD, and with practical things like your mortgage. 

If you’re paying off a home loan, our sister business, Watson Mortgages, can also help make sure your finances are structured to handle the unexpected.