At a glance:

  • Ensure the policy offers coverage for a wide range of illnesses, injuries, and more.
  • Look for a policy that provides a monthly benefit amount aligned with your income and essential expenses, aiming to replace a significant portion of your lost earnings.
  • Choose a policy that allows you to select a waiting period suitable for your financial situation.



You are likely to have some common financial obligations, regardless of your age, job, or health condition. Moreover, you have goals and plans for the future that will depend on your income and savings. If you are unable to work and have no income, will you be able to pay your bills?


In such a dire situation, income protection insurance will be a lifesaver until you return to work or you retire. Additionally, in today’s ever-changing and unpredictable world, ensuring financial stability is paramount. Life is filled with uncertainties, and unforeseen events such as injuries or illnesses can disrupt our ability to earn an income. During such challenging times, having a reliable safety net becomes crucial.


This is where income protection insurance comes into play, providing individuals with a vital layer of financial security.



Overview of Income Protection Insurance


Income protection insurance, also known as salary continuance insurance, is a form of coverage designed to protect individuals against the financial hardships that may arise from being unable to work due to injury or illness. It serves as a safeguard, ensuring that policyholders continue to receive a portion of their regular income if they are unable to work due to unforeseen medical conditions. This valuable coverage enables policyholders to meet their financial obligations and maintain their standard of living during periods of adversity.


A good income protection policy serves as a financial lifeline, offering peace of mind, and the ability to focus on recovery without worrying about the financial repercussions of a medical condition. By providing a reliable stream of income replacement, it offers individuals the necessary support to navigate difficult times with resilience and stability.



Why is Income Protection Insurance essential?


Many Australians find that they don’t have an emergency fund or a hedge against income loss if they’re unable to work due to uncertainty. They need security and backups to sustain their regular life.


Unlike other insurance types that offer a lump sum amount, income protection insurance is specifically created to allow you to cover the expenses of your daily living necessities. After the waiting period, income protection lets you replace up to 85% of your income if you are unable to work due to illness or injury.



Importance of Knowing What a Good Policy Includes


When considering income protection insurance, it is essential to have a comprehensive understanding of the key components and features that make up a good policy. By acquainting themselves with the elements that constitute an effective plan, individuals can make informed decisions and select the most suitable coverage for their unique circumstances.


It allows individuals to make informed decisions and select the most suitable coverage for their circumstances. Key components of a good income protection policy include the benefit payment duration, benefit amount, waiting period, definition of disability, and optional additional benefits.


These elements ensure sustained support, a stable financial foundation, prompt assistance, alignment with specific occupations and circumstances, and customisation based on unique needs. A comprehensive and suitable income protection policy should offer a range of coverage options tailored to different professions and personal situations.



Key Features of a Good Income Protection Insurance Policy


Comprehensive Coverage:

A good income protection insurance policy should provide comprehensive coverage for a wide range of illnesses, injuries, and disabilities that may prevent an individual from working. It should not limit coverage to specific conditions or occupations, ensuring that individuals are protected in various scenarios.


Benefit Amount:

The policy should offer a generous monthly benefit amount that reflects the insured person’s income and covers their essential expenses. It should aim to replace a significant portion of their lost earnings, providing financial stability during a period of disability.


Waiting and benefit period:

Depending on the conditions associated with your insurance coverage, you need to wait 14, 30, 60 or 90 days after filing a claim before you start to receive income protection payments.


Your benefit period is the length of time you’ll be paid funds by the insurer. You can select a shorter benefit period (like two years), which leads to lower premium payments. Regardless of your inability to work, your benefits will terminate at the end of the two years.


The cost of the premium may increase if the benefit period is longer. However, you will receive income protection benefit payments for an extended time as long as you’re still unable to work because of sickness or injury.


Hence, the waiting period or elimination period, should be reasonable and flexible. It should allow individuals to choose a waiting period that suits their financial situation, taking into account any savings or other sources of income they may have during that time.


Definition of Disability:

A good policy should define disability in a fair and relevant manner, taking into account the insured person’s occupation. It should consider their ability to perform the duties of their own occupation or a similar occupation based on their specific circumstances.


The policy distinguishes between “illness” and “injury,” with illness referring to any disease or condition that arises during the policy period and injury denoting a physical injury caused by external means.


The policy also covers partial disablement, where the insured person is unable to engage in a substantial part of their usual occupation but may be capable of working in a reduced capacity. In such cases, the compensation payable is calculated based on the difference between their earnings from reduced work and their pre-disability income.


It’s important for the policy to clearly outline the criteria for disability, ensuring fairness and relevance in determining the insured person’s entitlement to benefits.


Flexibility and Customisation:

A policy should provide options that allow individuals to customise their coverage based on their unique needs and preferences. This can include the ability to add riders, which are additional provisions that expand the scope of coverage for specific circumstances or risks.


Riders can be beneficial for individuals in occupations with higher risks or those seeking additional protection for specific events or conditions. Additionally, the policy should allow for adjustments in benefit amounts to align with changes in income or lifestyle.


This ensures that the policy remains relevant and provides adequate coverage as the insured person’s circumstances evolve over time. By offering flexibility and customisation, the policy can be tailored to meet the specific requirements of the insured person, providing them with peace of mind and confidence in their income protection coverage.


Affordable Premiums:

The premiums should be reasonable and affordable, taking into account the insured person’s income and budget. The policy should provide a clear breakdown of the premium structure and any potential premium increases over time, enabling individuals to make informed decisions.


Renewability and Portability:

The policy should include clear provisions for renewal, typically in the form of a renewal invitation sent prior to the policy’s expiration. It is essential for the insured person to carefully review the information provided in the renewal invitation to ensure its accuracy. This allows them to make an informed decision about renewing the policy.


A good policy should also outline the terms for renewability, ensuring that the insured person can continue their coverage without any interruption. Furthermore, the policy should offer portability, enabling individuals to maintain their coverage even if they change jobs or careers.


Portability ensures that the policy remains effective regardless of the insured person’s employment status or industry. By providing clear guidelines and procedures for renewal and offering portability, the policy ensures continuous and seamless coverage for the insured person’s income protection needs.


Additional Benefits:

Look for policies that offer additional benefits such as rehabilitation services, vocational training, or return-to-work support. These additional benefits can be invaluable in aiding individuals’ recovery and facilitating their smooth reintegration into the workforce.



Transparent Claims Process:


Policyholders must promptly notify the insurer of any injury, illness, or event that may lead to a claim and follow any instructions given. Written notice, along with relevant documentation, should be submitted to the designated claims centre.


Medical examinations may be required, and proof of claim must be furnished within a specified timeframe. The insurer will provide the necessary forms for filing the claim. A transparent claims process ensures efficient and fair handling of claims, instilling trust and confidence in policyholders during difficult times.


Number of policies applicable:

In Australia, each insurance provider has a unique underwriting procedure, which means each one has its unique criteria to accept your insurance application. Additionally, the conditions under which they pay out after a claim are probably different. Thus, refrain from choosing the first insurance policy you come across. You should compare a number of products and decide which is best for you.


Recognising the situations that can be claimed:

Income protection insurance only applies to illness or injury. This situation can prevent you from working either temporarily or permanently. This cannot be claimed if you lose your job or depart by your own choice.



Clarity on the expenses that comes under the Insurance


In certain situations where you don’t need up to 85% of your income coverage, you can use it to lower your premiums.


To begin with, calculate 85% of your pre-tax income. Using this figure, make a list of all your basic expenses like groceries, mortgage, energy bills, personal loan instalments, education fees, etc.


Compare your monthly expenditures with the 85% income figure. If the figure adequately covers your costs, you could select a smaller insured income and save on premiums. You are able to select insurance coverage for less than 85% of your income based on your requirements.



Exclusions and Limitations


Insurance providers can incorporate different exclusions in your policy. The following are frequently excluded from income protection insurance:


  • Self-imposed harm, including a suicide attempt
  • Participation in any illegal activity
  • Heavy consumption of drugs or alcohol


Some providers can exclude regular pregnancies and circumstances related to mental health issues. Before finalising your coverage, it is always a good idea to thoroughly check through these exclusions with your insurance provider.


At Aspect, our online income protection insurance offers these features and more, backed by Lloyd’s, the world’s specialist insurance market. With a simple and efficient process, individuals can obtain a quote and secure coverage in under 10 minutes without the need for phone calls. Protect your income and secure your financial well-being with one of Australia’s best income protection insurance products from Aspect.


Evaluating Your Policy

Begin by reviewing the coverage provided and ensuring it is comprehensive and not limited to specific conditions or occupations. Evaluate the adequacy of the benefit amount, considering if it aligns with your income and covers essential expenses.


Analyse the waiting period and choose one that suits your financial situation. Assess the benefit period options and ensure they provide sufficient coverage. Understand how the policy defines disability and whether it considers your occupation.


Look for customisation options, affordability of premiums, renewability, and portability. Explore additional benefits such as rehabilitation services. Understand the claims process and review any exclusions or limitations. By following this approach, you can make an informed decision about your income protection policy.



In conclusion, a good income protection insurance policy should offer comprehensive coverage, a suitable benefit amount, flexible waiting and benefit periods, a fair definition of disability, customisation options, affordable premiums, renewability and portability, additional benefits, a transparent claims process, and clear exclusions and limitations.


It is essential for individuals to carefully evaluate their insurance policies to ensure they meet their specific needs and provide adequate protection for their income and financial well-being. By conducting a thorough assessment, you can make an informed decision and have peace of mind knowing that you have the right coverage in place.

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.