Income protection insurance
How income protection pays you a regular income if illness or injury stops you working, plus waiting periods, benefit periods and tax.
The short version
- Income protection replaces part of your income while you can't work.
- A longer waiting period usually means a cheaper premium.
- Premiums held outside super are generally tax deductible; payments are taxable.
- Check whether your super already includes some income protection.
Your ability to earn an income is probably your most valuable asset. Income protection insurance pays you a regular amount if illness or injury stops you from working for a while.
How it works
If you can’t work because you’re sick or injured, income protection pays you a monthly benefit. It’s usually a percentage of your income, not the full amount.
It’s different from life or TPD cover, which pay one lump sum. Income protection keeps paying regularly until you return to work or the benefit period ends.
Most policies only cover illness and injury. They don’t pay if you lose your job through redundancy.
How much it pays
Insurers set the benefit as a share of your income before tax. Rules from APRA, the insurance regulator, limit how much new policies can pay:
- up to 100% of your earnings for the first six months of a claim
- up to 75% of your earnings after that
Many policies pay less than these limits. Your benefit is usually based on your earnings at the time you claim, so keep good records of your income.
The two big choices: waiting and benefit periods
Waiting period is how long you have to wait after you stop work before payments start. Common choices are 30, 60 or 90 days, or longer.
- A longer waiting period means a cheaper premium.
- Choose one that matches how long your sick leave and savings could last.
Benefit period is how long payments can continue for each claim. It might be two years, five years, or up to a set age such as 65.
- A longer benefit period means a higher premium.
- It also means more protection if you have a long-term illness.
| Choice | Lower premium | Higher premium |
|---|---|---|
| Waiting period | Longer (e.g. 90 days) | Shorter (e.g. 30 days) |
| Benefit period | Shorter (e.g. 2 years) | Longer (e.g. to age 65) |
Inside or outside super?
Some super funds include income protection. It can be convenient, but there are differences.
Inside super
– Premiums come from your super balance, not your bank account.
– Benefit periods are often shorter, such as two years.
– Cover can stop if you change funds or your account becomes inactive.
Outside super
– You pay the premiums yourself.
– You may have more choice over features.
– Premiums are generally tax deductible.
Tax
The ATO lets you claim a deduction for income protection premiums you pay yourself, outside super. If a policy also covers things like a lump sum for injury, only the part that protects your income is deductible.
You can’t claim premiums for income protection held inside super.
The benefit payments you receive replace your wages, so they’re taxable income. You need to include them in your tax return.
Things to check in the policy
- Definition of disability: whether you need to be unable to do your own job, or any job.
- Partial benefits: whether it pays something if you can work reduced hours.
- Exclusions: such as some pre-existing conditions or mental health claims.
- Indexation: whether your benefit rises with inflation during a long claim.
- Offsets: whether workers compensation or other payments reduce what the policy pays.
Where to get free help
- Insurance Law Service (Financial Rights Legal Centre): 1300 663 464 for free legal advice about an insurance claim.
- AFCA: 1800 931 678 if you can’t resolve a complaint with your insurer.
- National Debt Helpline: 1800 007 007 if you’re struggling with bills while you can’t work.
Work out your numbers
Fin Road Masterclass
Prefer to watch? Insurance on video
Short animated lessons that walk you through it step by step. Watch at your own pace, on any device.
Sources and further reading
General information only. This video doesn't take into account your objectives, financial situation or needs. Figures are for 2026–27 and can change. Check the official sources above.