Income protection
A plain-English guide to how income protection works, what triggers a claim, and the levers that shape your cover.
Quick answer
Income protection (often called 'IP' or 'salary continuance') replaces a portion of your income if illness or injury stops you working. The benefit is a regular monthly payment, not a lump sum. You can generally insure up to 70 per cent of your base income, not including super. What a given policy pays depends on its terms and offsets. The product is designed to keep household cash flow running during the period you can't work. Benefits start after a waiting period and continue for a benefit period.
What income protection covers
A claim is triggered when illness or injury stops you working in your stated occupation. Exact policy terms vary by insurer. The product disclosure statement is the source of truth.
Typically included
Typically not included
Four levers shape what an IP policy actually pays.
The gap between the disability starting and the first benefit payment. Common choices are 14, 30, 60, 90 days, or longer. The shorter the waiting period, the higher the premium. People with strong employer sick-leave entitlements often choose longer waiting periods. People with limited leave (self-employed, contractors, casuals) often choose shorter waiting periods.
How long the insurer keeps paying once a claim is approved. Common benefit periods are two years, five years, or to age 65. A two-year benefit period pays for at most two years per the policy's terms. A to-age-65 benefit period covers long-term and permanent disability through to the standard retirement age.
The monthly benefit you'd receive on a successful claim. You can generally insure up to 70 per cent of your base income, not including super. What a given policy pays depends on its terms and offsets. Some policies offer a top-up for super contributions and a small ancillary benefit. Higher benefit amounts cost more in premium.
Two ways of calculating the benefit at claim time. Indemnity policies calculate the benefit based on your income at the time of the claim. Most new IP cover sold in Australia is indemnity-style. Agreed value policies calculated the benefit based on income agreed at application. Agreed value was largely closed to new business under APRA sustainability measures that took effect on 31 March 2020. Existing agreed-value policies remain in force under their original terms.
Both routes are common. Each has trade-offs.
Inside super. Cover is funded from your super balance. Premiums paid through super may be deductible to the fund, but they come out of your retirement savings and can't be claimed personally. The cover is held under the super fund's group policy, with terms set by the fund. Default IP inside super is often modest, may have a long waiting period (often 60 or 90 days), and may have a relatively short benefit period (often two years). Reading the fund's product disclosure statement is the first step before relying on default cover.
Outside super. Cover is held directly with a life insurer. Premiums are paid from your bank account. The part of an outside-super premium that pays for income-replacement benefits is generally tax-deductible; lump-sum components generally are not. Get tax advice on bundled cover. Outside-super IP typically offers more choice on waiting period, benefit period, and ancillary features.
Both. Some Australians hold default IP inside super for a base layer of cover plus a separate outside-super top-up to lift the monthly benefit, shorten the waiting period, or extend the benefit period.
Six factors typically drive the price.
The trade-off: a shorter waiting period costs more but starts paying sooner; a longer benefit period costs more but pays for longer. How much sick leave and savings a household can draw on, and how long it could absorb lost income, are the usual comparison points. Settings vary by policy.
Who this matters to
Income protection exists because most households run on next month's pay. Understanding waiting periods, benefit periods and what a policy actually counts as income is the difference between cover that fits and cover that disappoints at claim time.
How a claim works
An IP claim runs in three broad steps.
You contact the insurer (or the super fund, if cover is inside super) once you stop working due to illness or injury. Most insurers prefer notification before the waiting period ends so the claim can be set up in advance.
The insurer asks for medical evidence (typically a treating-doctor statement and recent test results), employer income confirmation, and a completed claim form. Self-employed claimants provide income evidence through tax returns or business activity statements.
The insurer reviews the documents and confirms whether the disability meets the policy's claim definition. If approved, the first benefit is paid after the waiting period ends. The insurer then continues monthly payments for as long as you remain disabled, up to the end of the benefit period.
By occupation
Income protection is one of the most occupation-priced insurance products in Australia. Each occupation page describes the typical occupational loading, common exclusions, and how the standard policy responds for that role.
Frequently asked
You can generally insure up to 70 per cent of your base income, not including super. What a given policy pays depends on its terms and offsets. How insured income is defined, and how variable or self-employed earnings are averaged, is set by the policy. Income at the time of claim is typically used to set the final benefit, under the indemnity-style cover that is now standard.
The waiting period is the gap between the disability starting and the first benefit payment. The benefit period is how long the insurer keeps paying once benefits start. Common waiting periods are 14, 30, 60, or 90 days. Common benefit periods are two years, five years, or to age 65. Each lever has its own premium impact and trade-off.
Default IP inside super is real cover and does pay claims, but the terms are typically narrower than retail cover. Common limitations include longer waiting periods, shorter benefit periods, and stricter occupation definitions. Reading the super fund's product disclosure statement is the first step.
Most income protection policies include mental health conditions, subject to the policy's definitions and underwriting decisions. Some policies apply specific waiting-period rules or benefit-period limits to mental health claims. A policy may exclude mental health if a relevant condition was disclosed at application and excluded by the underwriter.
Income protection premiums paid outside super are generally tax-deductible to the policy owner under current Australian Taxation Office guidance. Premiums paid from inside super are deductible to the fund, not to you personally. Tax outcomes depend on individual circumstances. Confirming the position with a qualified tax accountant before relying on a deduction is the cleanest approach.
Sick leave and the waiting period can overlap, and policies differ on offsets: when payments actually start depends on the policy. Salaried employees with strong sick-leave entitlements often set a longer waiting period (60 or 90 days) and a benefit period that covers a longer-term incapacity. Self-employed people without sick leave often set a shorter waiting period.
APRA required insurers to stop offering agreed-value income protection to new customers from 1 April 2020, as part of sustainability measures for the product. APRA also proposed a five-year policy contract term for new IP policies, deferred it to 1 October 2022, and then suspended the measure in March 2022 before it took effect. Contract and renewal arrangements remain policy-specific. It did not cap benefit periods: to-age-65 benefit periods are still sold. Existing policies kept their original terms.
Agreed value is a benefit calculation method where the monthly benefit is set at application based on income at that time. Agreed-value cover was largely closed to new business from 1 April 2020, under APRA's sustainability measures. Existing agreed-value policies remain in force on their original terms. New IP cover sold today is typically indemnity-style, where benefit is calculated on income at the time of claim.
Yes. Many Australians hold default IP inside super alongside a separate outside-super policy. The two policies are typically coordinated so that the combined benefit doesn't exceed the policy's maximum monthly benefit, generally up to 70 per cent of base income, not including super, under APRA's settings for new policies.
No. Income protection covers inability to work due to illness or injury, not unemployment, business downturn, or job loss for non-medical reasons. Redundancy and job-loss cover are separate insurance products in Australia. A claim needs medical evidence and must meet the policy's disability, income-loss and waiting-period requirements.
No. Income protection pays a monthly benefit while you're unable to work due to illness or injury. TPD insurance pays a one-off lump sum if illness or injury permanently stops you working. IP triggers earlier (any disability that stops work) and pays recurring; TPD triggers later (permanent disability) and pays once. The two products are typically held alongside each other.
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