Important factors

There are a number of important factors to consider with income protection:

1. Level of benefit. You can generally insure an amount of up to 90% of your gross income for the first six months and 70% for the next 2 years and 60% thereafter. In the past, this may be an agreed amount* (agreed value) when you take out your policy or it may be assessed based on income (indemnity value) just before you make a claim. With effect from April 2021, only indemnity value policies are available.

2. Waiting period. The waiting period is the length of time from when you stop work before the insurance policy will start paying you an income. Generally, the longer the waiting period the cheaper the insurance policy will be. However, the longer the waiting period, the longer it will be before you start to receive your insurance payments after making a claim, so ensure you have some liquid funds available.

3. Benefit payment period. This is how long the insured amount is paid to you if you're unable to work. For example, if you're 35 and the benefit period is age 65, if you have an accident and can't return to work for the rest of your life, you will receive benefit payments to age 65.

*From 31 March 2020, APRA expects insurers to discontinue writing income protection insurance contracts where insurance benefits aren’t based on income at time of claim, including agreed value (and endorsed agreed value) contracts. Grandfathering arrangements apply for existing insurance policies.