What is Income Protection insurance? 
Income Protection insurance provides an income stream should you become unable to work due to an injury or sickness. Benefits are paid monthly, not as a lump sum. The amount of cover is restricted normally to 75% of your gross salary.
Premiums are tax deductible, (see below).
What are the Cover choices?
There are a number of choices to be made on the type of cover. The claim benefit period (period over which benefit is paid), can vary from 2 years to age 65. You must also nominate a waiting period/excess before a claim will be paid, commonly 14,30 or 90 days. Claiming benefits can be escalated in line with inflation.
Why do I need income protection insurance?
The choice of cover depends entirely on an individual's circumstances. However some would argue that income protection is probably the most important type of insurance - after all where would you be without your income?
How well could you survive without your income for a period of 12 months or longer?
Your income is used to maintain a certain living standard and also to build wealth and provide for your retirement. Unlike Trauma insurance, Income Protection does not specify a list of accepted conditions. Therefore greater coverage is provided, particularly for temporary illnesses such as back injury and stress related illnesses.
How much cover can I purchase?
The maximum amount of cover you can purchase is usually limited to:
- If you are employed: 75% of your current gross income (including employer superannuation contributions and packaged fringe benefits)
- If you are self employed: 75% of the income generated by the business due to your personal exertion less your share of expenses.
A lower percentage of income may apply above certain income limits eg $250,000 and overall maximum levels of monthly benefit sum insured will apply. The insurer may request financial evidence of your income including tax returns over the last 12 months
Premiums are often tax deductible
Unlike other forms of personal risk insurance, Income Protection premiums are tax deductible for most taxpayers. The after tax cost of the cover can therefore be significantly less than the cost of the premium.
