What Is Income Protection Insurance? Guide For Australians

What Is Income Protection Insurance? Guide For Australians

Income protection insurance can be an important financial safety net for many Australians. It may provide regular payments if you’re unable to work due to illness or injury — which can help you manage everyday expenses and reduce financial stress while you recover.

This guide explains what income protection insurance is, what it may cover (and what it usually doesn’t), how policies work in Australia, policy types, waiting periods, benefit periods, and how to choose cover that suits your situation. We’ll also explain income protection inside super, changes to policies since 2021, and how Credit24’s financial solutions may support you during an unexpected income disruption.

Apply now: https://www.credit24.com.au/au/apply/login

What is income protection insurance?

Income protection insurance is a type of insurance that may pay you a percentage of your income if you’re unable to work due to illness or injury. This may help you keep up with essential costs like rent or mortgage payments, groceries, utilities, and other regular commitments.

Key points:

• Income protection may replace a portion of your income (the amount depends on the policy terms and insurer rules).
• Payments usually continue until you’re able to return to work or the benefit period ends (whichever comes first).
• Income protection is offered by insurers and is subject to regulation in Australia; insurers and products must meet relevant regulatory and legal requirements.
• It may be especially relevant for people with limited sick leave, variable income, or financial commitments that would be difficult to meet without regular earnings (for example, some self-employed people and contractors).
• It can be part of a broader financial safety approach alongside budgeting, emergency savings, and appropriate insurance.
• Income protection can be purchased directly (a “retail” policy), arranged via an adviser, or included through some superannuation funds.

Financial literacy tip: Before you consider any policy, read the Product Disclosure Statement (PDS) and ask the insurer (or your adviser) to explain definitions, exclusions, waiting periods, and how income is calculated at claim time.

Income protection vs other types of insurance

Income protection is sometimes confused with other personal insurance products. Here’s a simple comparison (table-free format):

• Income protection insurance

  • Generally pays an ongoing monthly benefit if you can’t work due to illness or injury (subject to waiting periods, definitions, and policy limits).
• Total and Permanent Disability (TPD) insurance

  • Typically pays a lump sum if you meet the policy definition of being permanently unable to work again (definitions vary, especially inside super).
• Trauma / critical illness insurance

  • Often pays a lump sum if you’re diagnosed with a specified serious illness or event (for example, certain cancers, heart attack, or stroke — definitions vary).
• Life insurance

  • Usually pays a lump sum to your beneficiaries if you die, and may include cover for terminal illness (subject to policy terms).

Unlike TPD or trauma cover, income protection is generally designed to help replace part of your income over time if you’re temporarily unable to work.

Income protection in Australia: Changes since 2021

From 2021, changes were introduced across the market to improve the sustainability of income protection products.

Key changes included:

• Removal of new agreed value policies (with many insurers moving to indemnity-style approaches where income is assessed at claim time).
• Updated disability definitions and assessment approaches (which can affect eligibility for benefits).
• More structured benefit payment features, including limits and tighter controls on some policy add-ons.

These changes mean policies may be more standardised than they were in the past — but the details still vary between insurers. Always rely on the current PDS and policy schedule for the specific product you’re considering.

What does income protection insurance cover?

In general, income protection insurance may cover illness, injury, or medical conditions that prevent you from performing your normal work duties, depending on the policy definition and medical evidence.

Coverage may apply whether the condition occurs:

• at work
• at home
• during sport or recreation
• unexpectedly
• or through an illness that develops over time

Coverage varies by insurer and policy — always check the PDS.

Illnesses and injuries covered

Income protection may cover a range of conditions that temporarily prevent you from working, depending on policy terms. Examples can include:

• cancer and major medical conditions
• some heart-related conditions
• orthopaedic injuries (e.g., fractures, tendon injuries)
• chronic illnesses (e.g., arthritis, autoimmune conditions)
• mental health conditions (subject to definitions and exclusions)
• serious infections
• post-surgery recovery

Policies may apply whether injuries occur on or off the job. If you’re eligible for workers’ compensation, it may interact with (or reduce) benefits depending on your policy terms.

Own occupation vs any occupation

Policies may describe disability using different definitions. Common terms include:

• Own occupation: You may be assessed as disabled if you can’t perform your current job.
• Any occupation: You may need to be unable to perform any job reasonably suited to your education, training, or experience.

Retail policies may offer broader options. Cover held through superannuation often uses more restrictive definitions, but this depends on the fund and insurer.

Does income protection cover mental health?

In many cases, income protection may cover mental health conditions, such as:

• depression
• anxiety
• PTSD
• adjustment disorders

However:

• Some policies may apply waiting periods, benefit limits, or exclusions (including for pre-existing conditions).
• Cover through super may have stricter definitions or additional requirements.
• Claims usually require medical documentation and may involve ongoing reviews.

Financial literacy tip: If mental health cover matters to you, look closely at the policy’s definitions (for example, how “disability” is defined for psychiatric conditions) and any exclusions or benefit limits that apply.

Does income protection cover cancer?

Cancer is a common reason people enquire about income protection. Many policies may provide benefits during periods when treatment or recovery prevents you from working, subject to:

• the policy definition of disability
• waiting periods
• medical evidence requirements
• and any exclusions (including relevant pre-existing conditions)

Some insurers may ask additional questions during underwriting. It’s important to answer application questions accurately and disclose information as required.

Does income protection cover pregnancy?

Normal pregnancy and childbirth are typically not covered as a “medical condition” for income protection purposes.

However, some pregnancy-related complications may be covered if they prevent you from working and you meet the policy definition of disability. Examples might include:

• severe pre-eclampsia
• gestational diabetes with complications
• emergency caesarean recovery where there are complications and you’re medically unable to work
• hyperemesis gravidarum (in severe cases)

Many policies may include:

• a waiting period and/or exclusion period for pregnancy-related conditions at the start of cover
• medical documentation requirements

If you’re planning for parental leave, budgeting and savings strategies may be useful alongside considering insurance options.

What income protection does not cover in Australia

Does income protection cover redundancy?

Income protection generally does not cover redundancy or job loss. It’s usually designed to cover inability to work due to illness or injury.

Key points:

• Redundancy insurance (where available) is typically a separate product.
• Some policies may allow premium adjustments in certain circumstances, but that doesn’t necessarily mean income payments are payable.

If you lose your job, you may need to rely on budgeting, emergency savings, government support, or other options suitable to your situation.

Other exclusions and limitations

Common exclusions and limitations may include:

• self-inflicted injuries
• normal pregnancy
• pre-existing conditions (unless accepted by the insurer)
• criminal activity
• drug or alcohol misuse
• dangerous activities not disclosed during underwriting
• working overseas without notifying the insurer (policy-dependent)
• war or terrorism exclusions (varies by insurer)

Income protection also has age limits — many policies end around age 65, though this varies by insurer and occupation.

Types of income protection insurance in Australia

Indemnity value vs agreed value policies

Many newer policies assess your income at claim time (indemnity-style approaches). In the past, some policies offered “agreed value” (a set benefit agreed upfront), but this became less common and was restricted for new policies across much of the market.

• Indemnity-style (income assessed at claim time):

  • Benefit is usually based on verified income and policy rules at the time of claim.
  • May be more straightforward for people with stable, well-documented income.
• Agreed value (historically available on some policies):

  • Benefit was set at application based on evidence at that time.
  • Availability for new customers has been significantly reduced across the market.

Always check what method your policy uses, and how income is defined (e.g., salary, bonuses, commissions, business income).

What is income protection in super?

Some Australians have default insurance (including income protection) through their superannuation fund.

Potential benefits:

• Premiums are generally paid from your super balance (not your take-home pay).
• Automatic cover may apply for eligible members (subject to fund rules).

Potential limitations:

• Cover may be less flexible or less comprehensive than some retail policies.
• Disability definitions may be stricter, depending on the fund and insurer.
• Claims may take longer due to trustee involvement.
• Premiums paid from super can reduce retirement savings over time.

Check your super fund’s PDS to understand what cover you have and whether it suits your needs.

Retail income protection policies

Retail policies are purchased directly from an insurer or through a financial adviser.

Possible advantages:

• more flexibility in some features (waiting and benefit periods, options, and definitions)
• potentially broader rehabilitation and support features (policy-dependent)

Possible disadvantages:

• premiums are generally paid from after-tax income
• may cost more depending on features, occupation, and health factors

Key features of income protection policies

What is the waiting period for income protection?

The waiting period is the time between becoming unable to work and when benefit payments may start (if your claim is accepted).

Common waiting periods include:

• 14 days
• 30 days
• 60 days
• 90 days
• 180 days
• 1 year
• 2 years

A shorter waiting period often increases premium cost, while a longer waiting period may reduce premiums.

How to think about it:

• sick leave entitlements
• how long your savings could cover essentials
• access to other benefits or support
• your risk tolerance and budget

What is the benefit period for income protection?

This is how long benefits may be payable while you remain unable to work (subject to policy rules).

Typical benefit periods include:

• 2 years
• 5 years
• to age 65
• to age 70 (in some cases)

Longer benefit periods generally cost more.

What age does income protection stop?

Many policies end around age 65, though it may vary by insurer, occupation, and the policy you choose. Premiums and features may also change over time, so review your cover periodically.

How to choose the right income protection insurance

1. Assess your income needs

Consider:

• monthly essentials (housing, groceries, utilities)
• debt repayments
• family costs (e.g., childcare, school expenses)
• how much emergency savings you have
• what level of income reduction you could realistically manage

Insurers set limits on the maximum benefit you can receive, and benefits are generally less than your full income.

2. Compare policies

Look closely at:

• disability definitions (own vs any occupation)
• mental health terms and limitations
• partial disability benefits
• premium type (stepped vs level)
• exclusions and pre-existing condition rules
• rehabilitation support
• indexation options
• waiting and benefit periods
• claim process and evidence requirements

3. Stepped vs level premiums

• Stepped premiums: often start lower but can increase as you age.
• Level premiums: often start higher but may be more stable over time (depending on the insurer and policy rules).

Financial literacy tip: Ask the insurer (or adviser) for an example premium projection so you can understand how costs may change over time.

How Credit24 can help you

Income protection often includes waiting periods (for example, 14–90 days). During that time, some people may look for ways to manage short-term cash flow — such as reviewing budgets, negotiating repayment arrangements, using savings, or considering credit options that suit their circumstances.

Credit24 offers personal loan options that may help eligible customers manage certain expenses, subject to lending criteria, fees, and charges. Consider whether a loan is appropriate for your situation, and make sure you understand repayments and total costs before applying.

Apply now: https://www.credit24.com.au/au/apply/login

How to make a claim on income protection insurance

Typical steps may include:

• Notify your insurer as soon as you become unable to work.
• Provide medical evidence (e.g., GP, specialist, or mental health professional).
• Submit income verification documents (e.g., payslips, tax returns, business financials where relevant).
• Complete claim forms about your occupation and duties.
• Wait out the policy waiting period (if the claim is accepted).
• Receive monthly payments (subject to ongoing eligibility).
• Provide ongoing medical certificates or updates as required.

Insurers may request periodic reviews, progress updates, or rehabilitation plans depending on your situation and policy terms.

Frequently asked questions about income protection

Can you have multiple income protection policies?Yes, but insurers usually cap the total benefit payable across all policies. You generally need to disclose existing cover when applying.

How does income protection work with workers' compensation?If you receive workers’ compensation, income protection benefits may be reduced so the combined amount does not exceed policy limits (this depends on the policy).

How to reduce income protection premiums?Depending on the insurer, you may be able to reduce premiums by increasing your waiting period, shortening your benefit period, adjusting optional extras, or choosing stepped premiums.

Conclusion

Income protection insurance can help many Australians plan for the financial impact of illness or injury. By understanding what income protection may cover, what it typically doesn’t cover, and how key features like waiting and benefit periods work, you can make more informed decisions and improve your financial literacy.

If you’re reviewing your financial safety net or looking for ways to manage short-term cash flow during income disruption, consider tools such as budgeting, emergency savings, and—if appropriate for your circumstances—credit products offered under responsible lending obligations.

Apply now: https://www.credit24.com.au/au/apply/login

Disclaimer
IPF Digital Australia Pty Ltd, trading as Credit24, ABN 59 130 894 405. Australian Credit Licence 422839. The information in this article is general in nature and does not consider your objectives, financial situation, or needs. Lending criteria, fees, and charges apply. For product details, eligibility requirements, and full terms and conditions, visit www.credit24.com.au.