At a glance:

  • Income protection insurance replaces a portion of your income if you’re unable to work due to illness or injury.
  • It offers comprehensive coverage for various incapacities, including work-related and non-work-related incidents.
  • It provides peace of mind, financial stability, and additional benefits like rehabilitation support.



One of the most overlooked aspects of personal insurance is income protection insurance. Income protection insurance holds significant importance, providing financial support against unforeseen circumstances. With it, one can cover basic living expenses and save and invest for retirement.


The purpose of income protection insurance is to provide a financial safety net in case of unexpected events that lead to a loss of income. It ensures that individuals can maintain their standard of living and meet their financial obligations, too, even if they are temporarily unable to work due to illness, injury, or disability. By replacing a portion of the individual’s lost income, income protection insurance offers peace of mind and helps to secure their financial future.


The Importance and Worth of Getting Income Protection Insurance


The necessity of income protection insurance stems from the unpredictability of health incidents and accidents that can disrupt an individual’s ability to work. Life is full of uncertainties, and even the most careful individuals can face unexpected circumstances that prevent them from earning an income. Whether it’s a sudden illness, a debilitating injury, or a long-term disability, these unforeseen events can have a significant financial impact.


 According to recent statistics from the Australian Institute of Health and Welfare (AIHW), the impact of illness and injury on work capability is a factual reality in Australia. “On an average day, approximately 100 Australians suffer from a stroke, which can potentially lead to permanent work incapacity.”


Additionally, accidental falls are the leading cause of injury-related deaths. These statistics highlight the need for proactive measures such as income protection insurance to safeguard against the financial consequences of unexpected health incidents and accidents.


Facing a prolonged absence from work due to a serious illness or injury brings substantial risks that can impact individuals and their financial security. During such periods, individuals may face the burden of mounting medical expenses and the loss of regular income. Without income protection during these times, meeting daily living expenses, maintaining financial obligations, and planning for the future can become extremely challenging.


Click here to know how income protection insurance is calculated.



Benefits of income protection insurance


Protects Your Income


Income protection insurance ensures that you continue to receive a substantial portion of your income if you cannot work due to sickness or injury. This coverage acts as a financial safety net, allowing you to maintain your standard of living and meet your financial obligations even when you cannot work.


Financial Stability in Challenging Times


The insurance payout from income protection can cover essential expenses, including rent or mortgage payments, bills and credit card repayments, childcare and school fees, and other day-to-day living costs. It provides the necessary funds to sustain your financial stability while you focus on recovery.


Tax-Free Payouts


One of the significant advantages of income protection insurance is that the payouts are typically tax-free. This means that the full amount received can be used towards meeting your financial needs without worrying about deductions or additional tax liabilities.


Peace of Mind and Security


The most valuable benefit of income protection insurance is the peace of mind and the financial security it offers. Knowing that you have a reliable source of income even during unforeseen circumstances provides a sense of reassurance. It allows you to focus on your recovery without the added stress of financial uncertainty.


Learn how to get more value out of your income protection insurance.



Common Concerns or Misconceptions about Income Protection


I don’t need income protection because I have savings.


One misconception is that more than relying on savings is needed to cover income loss. However, this poses risks as savings may only sustain your lifestyle during a short absence from work. Unforeseen expenses can deplete savings rapidly, leaving you vulnerable. Income protection insurance provides a continuous income stream, ensuring financial stability and peace of mind during incapacity. It complements savings, offering a reliable source of income for recovery and long-term financial goals.


My employer provides disability coverage, so I’m already protected.


Another misconception is believing that employer-provided disability coverage is enough. However, it may have limitations and may only partially replace your income. Additionally, it is tied to your current job and may not continue if you change employment. Individual income protection insurance offers personalised and comprehensive coverage beyond the limitations of employer-provided plans, ensuring adequate protection regardless of your job or circumstances.


How is income protection different from Work-Cover?


Work-Cover, or workers’ compensation, is a government-mandated insurance program that covers work-related injuries and illnesses. Employers fund it and offer benefits such as wage replacement, medical expenses, and rehabilitation services to injured employees. In contrast, income protection insurance is purchased by individuals to protect their income in the event of illness, injury, or disability, covering a broader range of incidents, including both work-related and non-work-related events. Income protection insurance offers a percentage of regular income replacement for a specified period, while Work-Cover provides coverage for the duration of work-related injury or illness.


Won’t my sick leave cover me?


While employer-provided sick leave can provide temporary coverage for short-term illnesses or injuries, it may not be sufficient for extended periods of incapacity. Sick leave has limitations in terms of duration, typically lasting only a few weeks or months. It also offers partial income replacement, which may only partially cover some financial obligations. Additionally, specific eligibility criteria and job dependency can restrict access to sick leave benefits. Income protection insurance ensures comprehensive coverage and protects against prolonged income loss.


The Importance and Worth of Getting Income Protection Insurance-aspect


Do I need income protection if I’m self-employed?


Absolutely! Income protection insurance is especially crucial for self-employed individuals. As a self-employed professional, you don’t have the safety net of sick leave or employer-provided benefits, making income protection insurance even more essential. It offers financial security by providing a portion of your income if you are unable to work due to illness or injury. This coverage ensures that you can continue to meet your financial obligations and maintain your standard of living, even during periods of incapacity. By having income protection insurance, you can protect your livelihood and secure your economic well-being as a self-employed individual.


Income protection is only for high-income individuals.


Income protection insurance is not exclusive to high-income individuals. It is designed to provide financial protection for individuals across different income levels. Whether you have a high or modest income, income protection insurance ensures you have a safety net to replace a portion of your income if you cannot work due to illness or injury. It offers peace of mind and financial security, regardless of income level.



Limitations and Exclusions of Income Protection Insurance


When considering income protection insurance, it is essential to understand its limitations and exclusions. While income protection offers valuable benefits, certain exclusions may apply, and it is crucial to read and understand the policy terms and conditions carefully.


One common limitation is that income protection insurance typically does not cover redundancy. However, it is worth noting that some insurers offer optional redundancy cover as an additional benefit. To ensure comprehensive coverage, reviewing the policy carefully and considering any optional coverage options available to meet your specific needs and circumstances is important.



Evaluating Income Protection Insurance, is it Worth it?


Evaluating the worthiness of income protection insurance requires a careful assessment of personal circumstances and financial security needs. While income protection offers valuable benefits, considering several factors can help determine its value for an individual or family.


Firstly, it’s important to evaluate the level of income needed to maintain financial obligations and lifestyle in case of incapacity. Additionally, considering the individual’s occupation, risk factors, and the likelihood of experiencing a disability or illness can help determine the necessity of income protection.


The cost of the insurance policy should be weighed against the potential benefits received, including the percentage of income replacement and the duration of coverage. Conducting a thorough analysis of personal circumstances and financial goals is key to deciding whether income protection insurance is worth it.



Making an Informed Decision


Making an informed decision about income protection insurance involves carefully weighing the evaluation of personal circumstances and financial security needs. Once the assessment is complete, individuals can determine whether income protection is a necessary investment. Seeking professional advice from insurance experts can provide valuable insights and guidance in navigating the complexities of insurance policies. It is particularly important for part-time and casual workers to consider their specific employment conditions and potential gaps in coverage. Individuals can safeguard their financial well-being and protect against unexpected income loss by making a well-informed decision and securing the appropriate insurance coverage.



In conclusion, income protection insurance is vital in safeguarding individuals’ income and lifestyle. Providing a reliable source of income during periods of incapacity offers financial security and peace of mind. Throughout this article, we have explored the benefits of income protection insurance, debunked common misconceptions, and highlighted the importance of evaluating personal circumstances. Individuals must consider their specific needs and assess the potential benefits of income protection insurance. By making an informed decision and securing the appropriate coverage, individuals can protect their financial well-being and maintain their quality of life, even in challenging times.


While sick leave has limitations, income protection insurance offers comprehensive coverage, higher income replacement, and long-term benefits. At Aspect Underwriting, we understand the importance of protecting your income and securing your financial well-being. Our team is dedicated to helping you find the right insurance solutions tailored to your specific needs. With Aspect Underwriting, you can have peace of mind, knowing that your income and future are secure.

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.