Do I need Income protection? 


I Have developed
this guide to provide you
with some information to
help determine whether
you should obtain income
protection.

I have attempted to make
this analysis simple and to the
point, so that you can make
an informed choice. It covers
some important issues and
answers questions such as:

• why do I need income
protection insurance?

• doesn’t Worker’s
Compensation cover me?

• will I ever be able to claim?

• how much cover is
enough?

• what if I am overseas or
have to leave work?

What is income protection?

Most people have heard about
it, many don’t understand
exactly how it works and few
have adequate cover in place,
if any at all!

So what is it?

 It is a highly
effective way of helping
safeguard a person from the
single greatest threat they may
ever face – sickness or injury. If
sickness or injury renders you
unable to work, (and you satisfy
the terms and conditions of
your policy), then your income
protection will go to work for
you to pay a monthly income.
Quite simply, it will help put
food on the table, petrol in
the tank, stop the bank from
foreclosing on your mortgage,
keep school fees paid and
generally give you the means to
maintain a reasonable standard
of living if you are not able to
earn your income.

Why do I need it?

When you consider how
vulnerable a person’s lifestyle
is to a loss of income, it may
be quite a risk not having your
income protected.

Consider how much you earn,
multiply that by how many years
you have until retirement, and
then add a factor for infl ation
and pay increases. It doesn’t take
a mathematician to work out
that some people may be risking
literally hundreds of thousands,
if not millions of dollars if they
were to suffer a long term
medical condition without some
form of protection.

To put it in perspective, try
this quick quiz:

Which is your greatest asset?

Car Home Income

Which do you have insured?

Car Home Income

What if I just continue taking
my chances?

Recent statistics show that on an
average day in Australia:

• 214 people are diagnosed
with cancer 1

• 41 people undergo coronary
artery by-pass surgery 1

• 35 people between the age
of 35 and 69 will survive a
heart attack 1

• Further, more than 60% of
Australians will be disabled for
more than one month during
their working life 2

• more than 25% will be
disabled for more than
three months during their
working life 2 



But won’t my sick leave
cover it? 

Many people feel that income
protection is only for the self
employed and that their sick
leave will protect them if they
are off work. The truth is that
even the most generous
employer may be unable to
maintain a salary for someone
who is not able to work for an
extended period.

Once sick leave expires, there is
no obligation for your employer
to support you. You may have
personal savings, but for long
term conditions how long will
that last? You may choose to
rely on the Social Security system,
but these benefi ts may amount
to a fraction of your current income.
A reliable and practical answer is
to create your own independent
contingency plan through a
personal income protection
policy.

What about Worker’s
Compensation?

Many people believe that a lump
sum will be provided through
Worker’s Compensation if they
are substantially incapacitated.
However, the truth is that 57%
of disability claims are for sickness,
and WorkCover does not cover
non-work related sickness. 3  Add
to that the fact that over half
of all serious injuries happen
outside of work where Work-
Cover doesn’t apply. 4

Even if you are able to claim
Worker’s Compensation, the
restrictions on benefi t payments
are such that you may never
be able to retain your current
standard of living.

How much cover do I need?

It would be ideal if you could
insure your entire income
and suffer no loss if you were
off work indefi nitely, but this
would make the cost of cover
prohibitive.

Most income protection plans
will allow you to cover 75% of
gross earned income. This is to
maintain a standard of living
comparable to that which you
would have while working.

Quality check

A good policy will allow you
to add extra cover to protect
against the fi nancial loss and
increased costs caused by
severe disablement, and will
also allow you to add cover
to replace superannuation
contributions.

This enables you to continue
building a comfortable
lifestyle into retirement during
your time off work.

How do benefi ts work?

Benefit commencement and the
duration of benefi ts are set out
by a ‘waiting period’ and ‘benefi t
period’, which are decided
when you take out a policy.

The waiting period acts like an
excess on your car insurance in
that the greater the waiting
period, the lower the premium.
During this period you self-insure
the first instance of sickness or
accident through your sick leave
or your own means.

After that, if you satisfy
qualifi cation conditions, your
benefi t payments begin.
Benefi ts will continue for as long
as you continue to satisfy claim
conditions, up to a maximum of
your benefi t period. This should
ideally be for the remainder of
your working life - usually to age
65, although other alternatives
are available.

How do I qualify for a claim?

To be eligible to claim a benefi t
is a vital aspect of any income
protection policy. The major
criteria will relate either to:

• loss of income

• performance of duties

• number of hours worked.

This loss will be based on
the assessment of medical
practitioners, specialists and
accountants.

Quality check

Be aware of what your policy
offers. Is it an ‘income based’
style of claim criteria, a ‘duties
based’ criteria, or an ‘hours
based’ criteria? This is the
critical factor in determining
your ability to qualify for a
benefi t. Look for a policy that
is not restricted to just one
of these methods so that you
have more options when you
come to claim.

How much will it cost?

The investment you make in
this form of insurance may be
minimal when you compare it to
the potential benefi ts you could
be entitled to.

In general, it will amount to
a fraction of your income
allocated to ensure you keep an
income flowing in the worst of
circumstances.

What if I’m not at work or
on holidays?

One of the key benefi ts of a
good income protection plan
is that it offers cover regardless
of where you are or when you
become incapacitated. It gives
you around the clock protection
anywhere in the world.

Quality check

Look for a policy that offers
extra benefi ts if you are sick
or injured away from home
so that you have immediate
fi nancial resources during this
diffi cult time.

What happens if I change
jobs, leave work to have a
baby, or go on a sabbatical?
While the general principle is
to protect you while you are
actively engaged in earning an
income, there may be provisions
which allow you to continue
cover to some extent during
periods away from work, or to
suspend cover and recommence
without further qualifi cation after
you return to work. The type of
policy you take will specify how
these conditions work.

Quality check

Be sure to assess the policy
provisions in cases where you
have to temporarily leave
employment. Some policies
may disqualify you from cover
as soon as you leave paid
employment.

I have trauma and death
cover, isn’t that enough?

Income protection is
complementary to other
protection you may have, as it
provides a broader spectrum
of benefi t payment situations
when compared to other forms
of personal insurance.

While term, trauma and total
and permanent disability
insurance pay lump sum
benefi ts on defi ned events,
income protection pays a
monthly benefi t on less specifi c
criteria. In this way it forms
the basis of lifestyle protection,
upon which other lump sum
cover can be added.

DEATH COVER

TRAUMA COVER

TPD COVER

INCOME PROTECTION

Quality check

Check to see if you can
package your income
protection along with your
other personal insurances
under one policy - it could
save you money in lower
policy fees.

How do I arrange the
right plan?

Applying for income protection
insurance is simple if you get
the right advice. The first step
is to talk to a financial adviser
about how to assess your needs
and what type of cover will suit
you best.

From there they can provide
assistance in comparing the
relative merits of various
policies. Finally, they will help
you implement your plan
by guiding you through the
application and assessment
process and ensuring all relevant
disclosures and evidence are
supplied to your insurer.

1 Australian Institute of Health and Welfare,
“Cancer in Australia” 1995 and “Heart,
Stroke and Vascular Disease” 1999

2 Australian Disability Table IAD89-93
Class 2

3 Australian Bureau of Statistics National
Health Survey, 95

4 Institute of Actuaries - Report to the
Disability Committee, May 95
 
 
income Protection

Cairns Call 07 4084 0222, Brisbane Call 1800 884 170

Bundaberg Call 1800 884 170, Perth Call 08 9467 4719

Sydney Call 02 8004 9823, Melbourne Call 03 9017 2851

Adelaide Call Perth 0894674719, Darwin Call Perth 0894674719

Townsville Call Cairns 0740840222

Makay Call Cairns 0740840222, Rockhampton Call Bundaberg 1800 884 170

Gold Coast Call Brisbane 1800 884 170, Sunshine Coast Call Brisbane 1800 884 170

Towoomba Call Brisbane 1800 884 170, QLD Queensland Call  Brisbane 1800 884 170

NSW New South Wales Call Sydney  02 8004 9823, VIC Victoria Call Melbourne  03 9017 2851

WA Western Australia Call Perth  089 467 4719

Income protection and Life Insurance and Trauma Insurance in Australia? 
Quotes available for income protection and life Insurance 
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AIA Income Protection
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AMP  Income Protection
AXA  Income Protection
Aviva  Income protection
Asteron Income protection
Macquarie Life Income Protection
Suncorp income protection
 
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