Beginners Guide to Income Protection Insurance

There are many cases of people not being able to work due to some serious injury or illness. What if you came into such a situation? How will you meet your life’s needs? How will you pay your bills? What about your family?

To overcome all this fear, you need to know about income protection insurance help you select the best income protection insurance online for a secured life.

Let me share you this short and quick guide related to income protection so that you can know more about income protection, its types, and importance.

What is income protection insurance?

Income protection insurance is an insurance policy specially designed to financially help you by covering 75% of your salary incase you can’t work due to illness or injuries.

It ensures you keep receiving a replacement income until you become able to return to work or retire

  • Replaces part of income – covers most of the illnesses that leave you unable to work
  • Paid monthly, not as a lump sum
  • Can be claimed multiple times as per your need.

How does it work?

As already mentioned, income protection insurance covers 75% of your income, but some company offers up to 85% coverage. You need to specify the amount of claim while applying for income protection quote, and monthly premiums will be decided accordingly. You can also choose your benefit period for receiving income protection payments from1 to 5yearsor till you reach the age of 65.

An insurance company does provide an option for waiting period selection, from 14 to 90 days, but again, your monthly premiums will vary accordingly.

Types of income protection policies

There are generally two types of income protection policy.

  1. Agreed value:

In agreed value policy the benefit is fixed as per the earing at the time of applying for policy. It will remain constant even if your income decreases. It’s a good way to avoid such loss.

  1. Indemnity policy:

In indemnity policy your benefit is determine by the income at the time of claim. If your income is reduced you will only be compensated as per your current salary.

Some exceptions of income protection insurance

Income protection insurance have some exclusion, for which you might be able to claim your income protection

  • pre-existing medical conditions
  • losing your job for non-medical reasons
  • engaging in any criminal activities or illegal acts
  • war
  • self-inflicted act

If you have preexisting medical conditions, the insurance won’t cover such conditions. But some insurance company are willing to cover such conditions if you can pay them more. Most importantly don’t expect for income protection claim if you become jobless due to non-medical issues. Income protection insurance only covers for medical illness or injuries. All these factors might differ according to the type of insurance you have bought.

How much does income protection insurance cost?

The cost of your income protection insurance can vary due to various factors

  • Age: as a risk of getting ill increases with age, you will be charged more if you are old.
  • Health: health can be the main factor, if your health is right you will be paying less
  • Job: if your job is risky, like working at height, working underground, working with firearms, explosives and dangerous chemicals, etc. you will need to pay more.
  • Waiting period: waiting period does determine the cost; if you select the longer waiting period you will be paying less.
  • Amount of coverage: some company provides a monthly benefit of 75% up to $60000. So, the higher your coverage, the higher your monthly premium.

Usually, you will be paying a monthly premium from $36 to $60 depending on all the above factors.

Can I cancel my income protection policy?

The biggest fear of people who wants to buy an income protection insurance is whether the policy will be worth their money. And what happens if you won’t be able to pay monthly premiums due to some problems.

You can cancel your insurance policy if you don’t feel the policy is not worth your money. But it needs to be done within 30 days else you refund amount might be less. Moreover, it depends on the cancellation policy of a company.

Can I have multiple income protection policy?

Yes, you can have more than one income protection policy. But if you insure is aware about your compensation from other sources then they might reduce the benefit amount.

Taking multiple income protection policy can help in long term and short term financial loss. Let’s take an example to make it clearer.

Suppose you have one policy that cover 60% and another which cover 75%. The company that provides less coverage (i.e. 60%) have cheaper monthly premiums. So, you can keep the claim period shorter which can help you in short term. For long term benefit you can keep longer claim period for the policy that provides more coverage. It will make the monthly premiums cheaper.

It’s all up to you, sometimes taking multiple policy can be costly and taking single policy can be better.


These are some basic things you need to know before buying income protection insurance. After reading this beginners guide, you might have known more about the income protection insurance and how it works. I hope it will help you select the best income protection policy that is available within your country.

About the Author

Christian Taylor, is an assistant insurance agent at Aspect Underwriting- a boutique insurance agency in Melbourne that provides a wide range of insurance brokering and cover services including online Accident, Health, Trauma, and Income Protection quotes.

News Reporter