How does Income Protection Insurance work?

Income protection, also known as income insurance, is a policy where the insurer agrees to pay a specified amount of money if you become ill or injured and unable to work. Income protection insurance allows you to cover your expenses and maintain your financial obligations as you concentrate on getting better.

In the event of a claim, the insurer will pay an amount (normally up to 75% of your gross salary in Australia) until you have recovered sufficiently to work again, or up until the maximum benefit period as stated in the policy. This is normally two years, five years or up to age 65. The policy essentially replaces 75% of your income and enables you to meet any ongoing financial commitments while you are unable to work.

When you apply for an income protection insurance policy, the insurer will complete an assessment of the information you provide and decide whether to accept the risk and on what terms. Read the product disclosure statement very carefully and ensure that you get clarification on any areas you don't understand.

Income protection insurance often provides additional cover which is not covered by a trauma insurance or TPD (total permanent disablement) insurance policy.

The annual premium for income protection insurance is tax deductible.