Income Protection: The Insurance Most Australians Overlook (But Shouldn't)

McQueen Group
Jan 19
3 min read

You insure your car, your home, probably even your phone. But what about the one thing that actually pays for all of it: your ability to earn an income?

Income protection is arguably the most important insurance for working Australians, yet it's often the most overlooked. Let's fix that.

The Reality Check

Here's what keeps us up at night: one in five Australians will be unable to work for three months or more due to illness or injury. The average Aussie has about 3.7 weeks of sick leave banked. And if you're thinking Centrelink will cover the gap? The maximum Disability Support Pension sits at $971.50 per fortnight.

Run those numbers against your mortgage, school fees, and living expenses. Not pretty, is it?

What Income Protection Actually Does

Income protection replaces up to 75% of your gross monthly income if you can't work due to illness or injury. It's not always about catastrophic scenarios either. It could be a back injury, mental health challenges, or recovering from surgery. Life happens, and when it does, this cover makes sure the bills get paid.

The Decisions That Actually Matter

Waiting Periods

This is how long you wait before payments kick in:

30 days: Higher premiums, but ideal if you've got limited sick leave
60 days: The sweet spot for most people
90 days: Lower premiums if you've got decent sick leave entitlements
180+ days: Cheapest option, suits public servants with generous leave

Match this to your actual sick leave balance, no point paying for cover you don't need.

Benefit Periods

How long do payments continue?

2 years: Basic coverage at the lowest cost
5 years: Medium-term protection
To age 65: Comprehensive cover if you haven't built substantial assets yet
To age 70: Extended coverage for those planning to work longer

Super vs Direct: What's the Difference?

Through Super: Cheaper premiums paid from your super balance, but often limited cover amounts and basic definitions. Fine for basic protection, but may not cut it if you're the main income earner with a mortgage.

Direct Insurance: Higher premiums from your take-home pay, but better definitions (like "own occupation" rather than "any occupation"), higher benefit amounts, and tax-deductible premiums. Doesn't erode your retirement savings either.

Most people? They use a hybrid approach with basic cover through super, topped up with direct insurance where needed.

The Tax Win

If you hold income protection outside super and pay the premiums yourself, they're tax-deductible. The benefits are taxable when you receive them, but you're likely in a lower tax bracket if you're off work. It's one of the few insurances where you actually get a tax benefit.

What to Look For

Beyond the basics, these features matter:

Partial benefits: Payments if you return to work part-time
Indexation: Benefits that increase with inflation
Future increase options: Increase cover without new health assessments as your income grows

Where People Trip Up

The biggest mistake? Assuming you don't need it because you're young, healthy, or have savings. Your savings might cover three months, maybe six. What about twelve? Eighteen? Medical issues don't check your bank balance before showing up.

The second biggest mistake? Buying the cheapest policy without reading the definitions. "Any occupation" TPD definitions and restrictive income protection terms can leave you underinsured when it counts.

What This Actually Costs

For a 35-year-old earning $80,000 with a 60-day wait and cover to age 65, you're looking at roughly $80-$120 per month depending on your occupation and health. That's less than most people spend on streaming services and coffee runs.

Run the numbers on what six months without income would cost you. Suddenly that premium looks pretty reasonable.

Getting Started

First, check what's already in your super fund. You might have basic cover you didn't know about. Then work out the gap between that and what you'd actually need to maintain your lifestyle if you couldn't work.

If you're the main income earner, have dependents, or your family relies on your salary for the mortgage, income protection isn't optional. It's essential.

This is general information only. Your situation is unique, so consider getting advice specific to your circumstances.