Most of us insure our car or home without much thought, but protecting our income often gets overlooked. Yet your income is what makes everything else possible. If illness or injury stops you working, Income Protection insurance is the tool that can help keep the bills paid and your household running.
Here are a few key things to understand when thinking about this cover.
Waiting and benefit periods
Two important levers in any Income Protection policy are the waiting period and the benefit period:
- The waiting period is how long you need to be off work before benefits start. Common options are 30, 60 or 90 days. A longer wait usually means a lower premium, but you need savings or sick leave to cover the gap.
- The benefit period is how long the monthly payments will last. In many superannuation funds it is capped at two years, while retail policies can extend to age 65 or beyond. A shorter benefit period reduces cost but may leave you exposed if recovery takes longer.
These choices can make a big difference to both affordability and protection.
Income Protection vs workers’ compensation
Some people assume workers’ compensation will cover them. The reality is that workers’ comp only applies if your injury or illness is directly related to your job. It does not cover you for things like cancer, heart attack or a serious accident outside work.
Income Protection is much broader. It can cover you 24/7, regardless of whether the event is work-related. In other words, workers’ comp is limited to workplace injuries, while Income Protection covers the wider risks that could affect your ability to earn.
Inside super vs outside super
Income Protection can be held through your superannuation fund or as a retail policy in your own name. Both have pros and cons:
- In super – premiums come out of your super balance, which helps cash flow but reduces your retirement savings. Policies in super often have stricter definitions and shorter benefit periods. Cover may also be cancelled if your account becomes inactive.
- Outside super – premiums are paid personally (and are usually tax-deductible), and policies tend to offer more generous definitions and options for longer benefit periods.
If you already have default cover in your employer or industry fund, it is worth checking what it provides. Many people choose to top up with an external policy if the super fund cover is insufficient.
Balancing cost and cover
Income Protection can be tailored. Adjusting waiting periods, benefit periods or how the policy is structured (in or out of super) can affect both the level of protection and the cost. Reviewing existing cover is important, not just to check if you still need it, but to make sure the settings match your situation and budget.
The role of advice
Choosing the right structure and balance is not always straightforward. A specialist adviser can help you:
- Review any cover you already have in super
- Explain the trade-offs between waiting and benefit periods
- Structure cover inside and outside super to balance cost, retirement savings and protection
- Make sure you are not left exposed if illness or injury keeps you out of work longer than expected
Protecting your income is about more than just a policy — it is about peace of mind for you and your family. Taking time to review your cover now, with guidance if needed, can save a lot of stress later.
