A beginner's guide to income protection insurance

What would you do if you couldn't work? Unfortunately, not many of us can look into a crystal ball and predict the future, so income protection insurance could be worth considering - it can provide peace of mind, especially as our financial commitments increase. There are many different levels of cover though so you need to consider what is suited for your needs.

Income protection details

Income protection insurance could be worthwhile if you have a mortgage, margin loan or dependents to look after. Unfortunately, the bills will keep on coming even in the event of an accident - just think of your credit card, mortgage repayments and weekly grocery bills. In the event that you are unable to work and your claim is approved, your insurance company will pay you up to an agreed percentage of your wage if you have an income protection insurance policy in place.

The length of time that you will be paid while you are unable to work will vary based on the policy you set up. For many policies this will cover you until age 65 - but please speak to an insurance professional about the available options. Whether you are off work for several months or permanently, several weeks sick pay from standard employee benefits won't likely give you much financial stability. In effect, income protection insurance it protects your ability to earn an income - because for many people if that is taken away they wouldn't be able to support their financial commitments.

Premiums are generally determined by your age, sex, health, income, whether you're a smoker, what industry you work in, how long you're prepared to wait for your first payment and the length you want the benefit to last (for example, one that pays just for two years or until you're 65).

Income protection insurance pay outs

Many income protection insurance policies will pay up to 75 percent of your net income in the event of a claim. This is either for a limited period of, say, two years, or until you turn 65. The length of time you receive a benefit for varies depending on the policy type you choose to take out, which is generally determined by how much you are prepared to pay.

Waiting period

It is worth noting with this type of insurance that there is usually always a waiting period before receiving benefits. The waiting period can range from 14 days to over year, depending upon what time you nominate when applying for a policy. Common waiting periods are between 30 and 60 days and as the waiting period increases, the policy costs generally decrease. This type of insurance is usually not for short term financial protection - it is more about protecting your ability to earn in the long term. A regular savings plan is always a good back up to help you cover for short term instances when you are unable to work.


This article is about income protection insurance and is general information only. It should not however be treated as factual, as personal advice or be the basis of purchasing any insurance policy. Before deciding on an insurance policy read the PDS carefully and talk to a licensed insurance agent if you need further assistance. MoneyBuddy does not recommend insurance products or provide personal advice in regards to insurance products.

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