At a glance:

  • Different insurers may have different pricing structures, so it’s important to compare and choose wisely based on your needs.
  • Factors that influence the cost of income protection insurance include age, gender, smoking status, occupation, choice of insurance provider, policy features, and tax treatment.
  • Older individuals, smokers, and those in physically demanding occupations generally face higher premiums.



Income protection insurance is a safe hedge against the loss of income, or working ability caused due to injury or illness. An income protection insurance policy in Australia replaces a portion of an individual’s income in case they are unable to work. It can cover expenses during the recovery period, thus providing temporary financial relief. It should not be confused with TPD insurance, which is designed for permanent disabilities.


Various factors affect the cost of income protection insurance, such as the level of coverage, waiting period, benefit period, and age of the policyholder.


In the world of income protection insurance, not all insurers are created equal. They utilise distinct pricing methodologies, underwriting criteria, and risk assessments, resulting in variations in their pricing structures. This means that you might receive different quotes from different insurance companies, even for the same level of coverage.



Importance of understanding the cost of Income Protection Insurance


Understanding the cost of Income Protection Insurance allows you to plan your finances effectively and ensure that you have the right coverage in place. By familiarising yourself with the factors that influence the cost, you can make informed decisions about protecting your income and managing potential risks.


Insurers consider various factors when determining the cost of income protection insurance. These factors typically include your age, gender, smoking status, and occupation. Each of these variables is evaluated to assess the associated risks and calculate the appropriate premium amounts. Additionally, insurers may offer unique policy features and benefits, which can further impact the cost of coverage.


To find the most suitable income protection insurance for your needs, it’s critical to explore multiple insurers and compare their pricing structures. This enables you to gain a comprehensive understanding of the available options and make a well-informed decision based on your specific requirements and budget. Remember, the cheapest option may not always provide the most comprehensive coverage, so it’s essential to evaluate policy features alongside the cost.


By recognising that different insurers have different pricing structures, you can navigate the insurance market more effectively. This knowledge empowers you to choose an insurance policy that not only fits your budget but also provides reliable and comprehensive coverage, ensuring financial stability during uncertain times.



Factors Influencing Premium Calculation


Premiums for income protection insurance are influenced by various factors. Here are some key factors that impact the calculation of premium rates:




Age is a significant factor in premium calculation. Generally, younger individuals may pay lower premiums compared to older individuals. This is because younger individuals are considered less likely to experience health issues or disabilities that would require income protection coverage.




The nature of your occupation plays a role in determining the premium amount. High-risk occupations, such as those involving manual labour or hazardous conditions, are typically associated with higher premiums due to the increased likelihood of work-related injuries or illnesses. Conversely, low-risk occupations may have lower premiums.




Income level is also taken into account when calculating premiums. Higher-income earners may pay higher premiums as the coverage amount is based on a percentage of their income.


Health and lifestyle factors


Your overall health and lifestyle choices can impact the premium rates. Insurance providers may consider factors such as your medical history, body mass index (BMI), and participation in risky activities. Individuals with good health and low-risk lifestyles may qualify for lower premiums.


Pre-existing medical condition


If you have a pre-existing medical condition, it may affect the premium amount or result in exclusions for certain conditions. Insurance providers may conduct medical underwriting to assess the risk associated with your condition.


Smoking status


Smokers generally face higher premiums compared to non-smokers. Smoking is considered a significant health risk, increasing the likelihood of illnesses and disabilities.


Waiting period


The waiting period is the time you must wait before you can start receiving benefits after making a claim. Shorter waiting periods may lead to higher premiums, as you can start receiving benefits sooner.


Benefit period


The benefit period refers to the length of time you will receive income protection benefits if you are unable to work. Longer benefit periods typically result in higher premiums.



What is the average Cost of Income Protection? 


Age: 40

Income: $100,000 per year

Occupation: Software Engineer

Health: Non-smoker with no pre-existing medical conditions


In this example, let’s dive into the estimated cost of income protection insurance for a 40-year-old software engineer earning $100,000 per year. Keep in mind that these figures are for illustrative purposes only and may not reflect current market rates. It’s always wise to obtain personalised quotes from insurance providers for accurate cost estimates.


At the age of 40, the average cost of income protection insurance could range from $1,200 to $1,800 per year, taking into account various factors such as occupation, health, and waiting and benefit periods.


Since your income is $100,000 per year, the cost of income protection insurance may be calculated as a percentage of your income. On average, you might expect to pay between 1% and 3% of your income, resulting in an annual premium of $1,000 to $3,000.


As a software engineer, you’re likely in a low-risk occupation, which can lead to lower premiums. The average cost for this occupation could range from $900 to $1,500 per year.


Medical conditions


Considering your non-smoker status and absence of pre-existing medical conditions, you may qualify for standard rates. It’s crucial to provide accurate health information during the application process to ensure proper assessment.


Waiting period and Benefit period


With a waiting period of 30 days and a benefit period of 2 years, the impact on the premium is moderate. However, opting for a shorter waiting period, such as 14 days, could increase the average cost by around 5% to 10%.


Additional policy


The inclusion of additional policy features, like total and permanent disability (TPD) cover or trauma cover, will affect the cost. Adding these features may increase the premium by approximately 10% to 20% or more.


Taking all these factors into consideration, the average annual cost of income protection insurance for this example might range from $1,200 to $2,500. Remember, individual rates can vary based on personal circumstances and policy details.


To obtain an accurate cost estimate tailored to your specific situation, it’s highly recommended to consult with insurance professionals. They can assess your unique factors and provide you with precise cost information based on your needs.


Cost of income protection insurance


According to a survey conducted by Finder, the average monthly cost of income protection insurance in Australia is $71.93. However, this cost can fluctuate based on the above-mentioned factors.


As per the survey, the average monthly cost of income protection insurance for a 30-year-old non-smoking male with a $4,000 monthly benefit and a 90-day waiting period is $57.50. In comparison, the average monthly cost of income protection insurance for a 30-year-old non-smoking female with a $4,000 monthly benefit and a 90-day waiting period is $82.46.


It is also noteworthy that the policyholder’s occupation can significantly impact the cost of income protection insurance. For instance, the average monthly cost of income protection insurance for a 30-year-old non-smoking male office worker with a $4,000 monthly benefit and a 90-day waiting period is $53.96. However, for a 30-year-old non-smoking male construction worker with the same benefit and waiting period, the average monthly cost of income protection insurance is $86.14.


Additional Costs and Exclusions in Income Protection Insurance


It is important to note that income protection insurance policies can have additional costs, and there are exclusions that policyholders should be aware of prior to purchasing the product. We always recommend that you read the Product Disclosure Statement (PDS) of the income protection insurance you favour before finalising your purchase.



How is my monthly Premium calculated?


Understanding how your monthly premium is calculated is crucial when it comes to income protection insurance. Let’s delve into the details and explore the calculation process, along with some examples.




Your age is a significant factor in premium calculation. Generally, as you get older, the risk of developing health conditions increases, resulting in higher premiums. For example, a 30-year-old individual may pay lower premiums compared to a 50-year-old with the same coverage.




Your income level plays a role in determining your premium amount. Typically, income protection insurance covers a percentage of your pre-disability income. Let’s consider an example: John earns $5,000 per month and has an income protection policy that covers 75% of his pre-disability income. His monthly benefit would be $3,750 (75% of $5,000).




The nature of your occupation and associated risks influence your premium. Jobs with higher physical demands or increased risk factors may lead to higher premiums compared to low-risk occupations. For instance, a construction worker might have a higher premium compared to an office administrator with the same coverage.


Health and Lifestyle Factors


Your overall health and lifestyle choices, such as smoking, can impact your premium. Smokers generally face higher premiums due to the heightened health risks associated with smoking. Let’s consider an example: Sarah is a non-smoker and pays $100 per month for her income protection coverage, while her colleague Mark, who is a smoker, pays $150 per month for the same coverage.


Waiting Period and Benefit Period


The waiting period is the duration between the start of your disability and when you become eligible to receive benefits. A shorter waiting period often leads to higher premiums. The benefit period refers to the length of time you’ll receive income protection benefits once eligible. Longer benefit periods can result in higher premiums.

For example, choosing a 30-day waiting period instead of a 60-day waiting period may increase your premium.




John, a 40-year-old accountant earning $6,000 per month, wants income protection coverage that provides a 60% benefit of his pre-disability income. Based on these details, the insurer calculates John’s monthly benefit as $3,600 (60% of $6,000).


Lisa, a 35-year-old graphic designer, chooses a waiting period of 30 days and a benefit period of 12 months for her income protection policy. These choices affect her premium, which may be higher compared to someone with a longer waiting period or shorter benefit period.


Remember that the above examples and scenarios are for illustrative purposes only, and actual premium amounts may vary based on individual circumstances, policy terms, and insurance providers.


Additional Factors to Consider That Might Affect Premiums


When it comes to income protection insurance, there are several additional factors to consider that can have an impact on your premiums. It’s essential to be aware of these factors to make informed decisions about your coverage. Let’s explore some key considerations that may affect your premiums.


Policy Options:


Income protection policies often come with various options and features that can influence the cost of your premiums.

For example, you may have the option to choose between stepped premiums and level premiums.


Stepped premiums start lower but increase over time with age, while level premiums remain the same throughout the policy term. Additionally, you might have the choice to add extra benefits or features to your policy, such as total and permanent disability (TPD) cover or trauma cover. These additional options can impact your premium amount.


Inflation Protection and Indexation:


It’s crucial to consider whether your income protection policy includes inflation protection or indexation. These features ensure that your benefit amount keeps pace with inflation over time. While these options provide valuable protection against the eroding effects of inflation, they may result in higher premiums due to the increased coverage provided.


Exclusions and Limitations:


Income protection policies often have certain exclusions and limitations. Exclusions refer to specific conditions or circumstances that are not covered by the policy. Limitations, on the other hand, may place restrictions on the benefit payout under certain circumstances. It’s important to carefully review the policy documents to understand any exclusions or limitations that may apply. These factors can affect the premium amount and the extent of coverage provided.


Policy Renewal and Adjustments Over Time:


Income protection policies are typically renewable annually or at specific intervals. During the renewal process, the insurer may adjust your premium based on various factors, including changes in your age, occupation, or the overall claims experience of the insurance provider. It’s important to be aware that your premium may change at each renewal period.



Tips for Choosing the Right Income Protection Insurance Policy


If you are considering purchasing an income protection insurance policy in Australia, here are some tips to help you choose the right one:


Determine your needs


Before you start looking for a policy, take the time to assess your needs. Consider factors such as your current income, financial obligations, and any dependents you may have. This will help you determine the amount of coverage you need and the length of the benefit period.


Compare policies


There are many income protection insurance policies available in Australia, and they vary in terms of coverage, benefit period, waiting periods, and cost. Make sure you compare policies from different providers to find the one that best meets your needs and budget.


Look for a reputable provider


Choose a provider that has a good reputation in the industry and a history of paying claims. You can check online reviews or ask for recommendations from friends or family.


Consider the waiting period


The waiting period is the amount of time you must wait after becoming ill or injured before you can start receiving benefits. The longer the waiting period, the lower the premiums, but you should also consider how long you can afford to be without income.


Understand the benefit period


The benefit period is the length of time you can receive benefits if you are unable to work due to illness or injury. Make sure you choose a benefit period that provides adequate coverage until you are able to return to work or retire.


Check for exclusions


Some policies may have exclusions for certain types of illnesses or injuries. Make sure you read the policy carefully to understand what is covered and what is not.


Consider the cost


As income protection insurance can be costly, it’s crucial to select a policy that fits within your budget. To make it more affordable, you could contemplate modifying your waiting period or benefit period to reduce the premiums or insure a smaller amount of your income. This can help you obtain the coverage you require while keeping the cost within your budget.


Seek professional advice


If you are unsure about which policy to choose, consider seeking advice from a financial adviser or insurance broker. They can help you understand your options and find the policy that best meets your needs.


If you are still uninsured and the thought of losing your job or source of income gives you jitters, it’s time to get an instant income protection insurance quote without any hassles.


Aspect UW can assist you in safeguarding your income and securing your future by providing an insurance plan tailored to your specific needs, offering protection against unforeseen events. Get an immediate income protection insurance quote by contacting us now.



In conclusion, understanding the cost of income protection insurance in Australia is crucial for financial security during illness or injury. Factors like age, occupation, and policy details influence premiums.

Professional workers typically pay less than blue-collar workers. Premiums are affected by policy type, pre-disability income, waiting periods, and more. Consider policy options, inflation protection, and exclusions. Review policy documents and consult professionals for informed decisions.


If you have any further questions or require additional assistance regarding income protection insurance or any related matters, feel free to consult with Aspect, a licensed insurance professional who can provide personalised advice based on your specific situation.

Mike Wallis

Mike has over 25 years experience, having spent his first seven years working as a Broker at Jardine Lloyd Thomson in Melbourne and in 2002 was transferred to JLT’s Accident and Health Department in London. For four years (2002 – 2005) Mike was a specialist A&H Lloyd’s Broker and during this time developed excellent relationships with the Lloyd’s A&H underwriting fraternity. In 2006 he returned to Australia in a senior broking position with overall responsibility for Placement Strategy, including the implementation of underwriting facilities and the various authorities granted by Lloyd’s. Mike was the underwriter at two specialist Underwriting Agencies prior to founding Aspect Underwriting in 2016.