An income safety net
Income protection insurance, also known as salary
continuance, can help you manage your expenses if you are
unable to work for a certain amount of time if you are sick or
When purchasing income protection, consider what other types of
life insurance you need as well, such as life cover and total and permanent
Do you need income
Income protection insurance replaces the income lost through
your inability to work due to injury or sickness. It is especially
suitable for self-employed people, small business owners or
professionals whose business relies heavily on their ability to
Choosing an income
Each income protection policy has its own definition of
disability and range of benefits. Income protection usually offers
cover for up to 75% of your gross wages for a maximum time period
(e.g. 2 years or to age 60).
Income protection policies may be stepped or
level, so make sure you understand what sort of policy you are
Case study: Bob cuts his
Bob wanted additional income protection insurance so he paid
more money through his super fund to get the maximum cover. After
realising he had 10 weeks of annual and sick leave up his sleeve,
he opted for a 3-month waiting period to reduce his premium. If he
ever needs to make a claim, he can cover the first 3 months with
his saved leave payments.
Income protection premiums (outside super) are generally
You will need to pick a waiting period when you select your
level of cover. This is the period of time (often 30 to 90 days)
before you can make a claim.
Take into account your leave balances (e.g. annual, sick and
long service leave) and access to emergency cash when choosing
your time period.
Many super funds offer income protection. To see what cover is
Some insurers offer redundancy insurance as optional cover on
income protection policies. Redundancy insurance can provide
short-term financial assistance if you lose your job.
To be eligible for redundancy insurance, you need to meet the
insurer's definition of 'involuntary unemployment' which can mean
for example, if you are:
- an employee and you have been 'let go' from a job that has
been paying you a salary, wage or commission.
- self-employed and your business has stopped trading
because you haven't been able to meet the business' financial
- on a fixed term contract (e.g. 12 months or more) and the
contract ended before a date you previously agreed on, and not by
your own choice.
Before you take out redundancy insurance, consider the
- Likelihood of redundancy - How likely is it and could you find
another job quickly?
- No claim period - how long do you have to wait before you can
- Waiting period - how long must you be out of work before you
will receive any benefits?
- Payment limits - how much will you receive, and will it be
- Expiry age - most policies expire when you reach a certain age,
You may also be eligible to receive a redundancy payment, which
may reduce the need for separate insurance. Visit the Fair Work
Ombudsman's website for information on
redundancy pay and entitlements.
Before you take out redundancy insurance, check the PDS to find
out what exclusions apply.
Things you need to tell your
You need to tell your insurer anything that could affect their
decision to insure you when you apply for, renew or change an
income protection or life insurance policy. You also need to tell
the life insurer about things that have happened between the time
you apply and when the insurance cover starts.
Some insurance companies need you to give them details of your
medical history. If you don't have this information, you can get it
from your doctor. The insurer may refuse your claim if you don't
give them this information, and this could affect any income
protection or life insurance you apply for in the future.
Making a claim on your income
If you need to make a claim on your income protection policy,
you will have to provide evidence of your illness or injury. Ask
your insurer exactly what they need from you so your claim gets
processed as quickly as possible.
The income protection payments you receive from a successful
claim will be for the period you are unable to work, in line with
Income protection gives you a steady source of
cash in case you get injured or sick and cannot work. This means
you can focus on getting better and not on how you're going to pay
Last updated: 19 Dec 2018