Income protection insurance
Insurance replacing part of your income if illness or injury stops you working.
Income protection typically replaces up to around 70% of your pre-disability income after a waiting period, paying monthly until you recover or the benefit period ends.
Two settings drive the premium: the waiting period before payments start, and the benefit period they continue for. Longer waiting periods and shorter benefit periods cost less.
Held outside super, premiums are generally tax deductible to you personally. Held inside super, they come from your balance instead of your cashflow but reduce retirement savings.
Check whether the policy is guaranteed renewable and whether premiums are stepped or level. Stepped premiums start cheaper but rise steeply with age, and many people cancel cover precisely when they are most likely to need it.
What it replaces
On a $120,000 salary, a policy covering 70% pays around $7,000 a month after the waiting period — enough to keep a mortgage and household running.
The bit people get wrong
Policy definitions matter more than price. Cover based on your own occupation pays if you cannot do your specific job; cover based on any occupation may not pay if you could work in some other role.
Common questions
Are premiums tax deductible?
Generally yes when held personally outside super, because the benefit would be assessable income. Premiums for policies inside super are not deductible to you personally.
Do I need it if I have sick leave?
Sick leave covers days, not months. Income protection addresses long-term inability to work, which is where the real financial risk lies.
Is the benefit taxable?
Yes. Payments replace income, so they are assessable and taxed at your marginal rate in the year received.