Context & Problem

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No one likes to think about being unable to work. But according to statistics from the Australian Bureau of Statistics (ABS), around 1 in 5 Australians will experience a disability lasting more than 6 months during their working life.

Unless you have a significant cash buffer, long-term sick leave or time off due to injury (which can include mental incapacity) could lead to financial strain. For many, the safety net provided by income protection insurance can bridge the gap—but it comes at a cost.

What’s changed in recent years is how income protection policies are structured. Since 2020,APRA (the prudential regulator) has enforced stricter rules to stop overly generous claims, which means newer policies may offer less than older ones did. That makes it more important than ever to understand what you’re paying for.

How Income Protection Insurance Works

Income protection insurance typically pays you up to 75% of your regular income if you can’t work due to illness or injury. Here’s how it usually works:

• Waiting period: This is how long you must wait after stopping work before payments begin—typically 30, 60 or 90 days.
• Benefit period: This is how long payments continue—2years, 5 years, or up to age 65depending on what is selected
• Monthly benefit: Calculated based on your recent income (e.g. last 12 months if you’re employed, longer if self-employed).

When It’s Worth Considering

You may want to consider income protection if :

• You’re self-employed or casual with no sick leave
• You have dependants or a mortgage and no other income support
• You don’t have enough savings to cover3–6months of living expenses
• You work in a physically demanding job where injury risk is higher

What It Doesn’t Cover

• Redundancy or job loss not due to illness/injury
• Pre-existing conditions (often excluded or heavily restricted)
• Policies held inside super may be cheaper but offer fewer features and slower payouts

Smart Policy Tips

• Choose alonger waiting period(e.g. 90 days) to reduce premiums if you have some savings
• Be honest in your application—claim disputes often come from undisclosed conditions
• Review every couple of years to make sure the benefit amount still reflects your income

Isn’t this covered by workers ’ comp?

Only if the injury or illness is work-related. Most income protection claims are for things like cancer, back injuries, or mental health conditions—not work accidents

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I have sick leave — do I still need it?

Maybe not right away. If you have several months of paid leave and a supportive employer, you might delay or opt for a policy with a longer waiting period.

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I'm young and healthy — should I wait?

Premium share lower when you’re younger. Locking in a policy early can save money long term, especially if your health changes later.

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Is it better inside or outside super?

Policies held inside super are more affordable but usually less flexible. For example, payments might be delayed while your super fund assesses eligibility under the “temporary incapacity” rules.

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Can ’ t Centrelink help

Government benefits like Job Seeker or the Disability Support Pension may apply, but they’re means-tested and much lower than most people’s usual income.