Income protection (IP) replaces part of your income if illness or injury stops you working for a while. Unlike a lump sum, it pays a monthly benefit — and the rules changed materially in recent years, so old assumptions can be wrong.
How much it pays
Since APRA’s reforms, new policies pay up to 90% of your income for the first 6 months, then 70% thereafter. “Agreed value” policies were abolished for new cover from 2020 — new policies are indemnity, meaning the benefit is based on your income at the time of claim, not a figure locked in years earlier.
Waiting and benefit periods
- Waiting period: how long you wait before benefits start — commonly 30, 60 or 90 days. Longer waits mean cheaper premiums.
- Benefit period: how long benefits are paid — e.g. 2 years, 5 years, or to age 65. Longer benefit periods cost more but protect against a long-term illness.
Match your waiting period to your sick leave and savings buffer, and your benefit period to how long your household could cope without your income. Getting these two settings right is where most of the value — and cost — sits.
Frequently asked questions
How much does income protection pay?
New policies pay up to 90% of your income for the first six months, then 70% after that. Older policies may differ, as pre-2020/21 terms are grandfathered.
Are income protection premiums tax-deductible?
Premiums for a standalone IP policy held outside super are generally tax-deductible. Benefits you receive are taxed as income because they replace your salary.
What waiting and benefit periods should I choose?
Match the waiting period to your sick leave and savings (30/60/90 days are common), and the benefit period to how long your household could manage without your income (2 years, 5 years, or to age 65).
Not sure which fund is right for you?
Get a complimentary, no-obligation review of your fees, performance and insurance from a licensed Donmont adviser.
Book my free review →