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Income protection insurance FAQs

Published 10 May 2021

Did you know that three out of every four Australians have less than six months of saved income?  Although this might seem like just another statistic, 2020 harshly reminded many of us how unexpected events such as a pandemic can impact your lifestyle and livelihood.

Frequently asked questions about income protection

Income protection insurance provides you with regular financial support if you find yourself unable to earn an income. We answer your frequently asked questions to help you understand income protection.

Income protection insurance, sometimes known as income insurance, is designed to replace part of your income to make sure money is still coming in, even if you can’t work.  Generally, income protection insurance can provide you with between 75 and 85 per cent of your regular income for a specified period of time – called the benefit period. The amount you receive each month is based on the income you earned over the previous 12 to 24 months.

If you’re forced to take time off work because of illness or injury, you may struggle to pay for everyday expenses such as your mortgage, rent, groceries or school fees. Income protection insurance provides you with regular payments to help meet these expenses.

Your insurer calculates your premium based on a number of factors such as your age, gender, whether you’re a smoker, and your occupation. If your job is a physical one, your premium is likely to be higher as your insurer will view you as being more at risk of injury. Women also tend to pay more for income protection insurance.

You can reduce your premium by choosing a longer waiting period, which is the amount of time you’re prepared to wait before you become eligible for payment.

Also premiums paid directly by you, rather Income Protection cover provided through your super fund, can be tax deductible.

You will need to check your policy to find out if there are any exclusions, although generally, income protection insurance doesn’t cover you for lost income if you have taken voluntary redundancy (although some policies may cover you for involuntary redundancy) or you lose your job for reasons like a company going out of business.

Some policies are automatically accepted and rely on a pre-existing condition clause, which means you can’t make a claim that relates to a condition you had before the policy started such as cancer, diabetes or a heart condition.

Other policies are underwritten upfront and require you to answer health and lifestyle questions before your cover is accepted. You may be charged a higher premium or have an exclusion applied if your insurer believes you represent a higher risk, and some may decline to offer any cover.

Some insurers may have standard exclusions resulting from:

  • pregnancy
  • mental ill-health
  • self-harm or attempted suicide
  • drug use or criminal activities
  • war
  • training for, or participating in, professional sports or motor racing.

The benefit period varies between insurers but is generally between 1-5 years or to age 65.

This is the length of time you must wait before your benefit becomes payable. Benefits are generally paid in arrears, so if the waiting period is 30 days and you lodge a claim, then your benefits start to accrue from day 31. Then you’ll be paid at the end of that month for salary lost from Day 31 onwards.

The most common waiting periods are 30 days, 60 days or 90 days, although some policies allow for periods that range from two weeks to two years. Generally choosing a longer the waiting period can reduce your premium.

If you have a reasonable amount of savings, or have accrued annual or long-service leave, it may be more cost effective for you to choose a longer waiting period. If you have little in the way of savings, it may be best to choose a shorter waiting period.

Your premiums need to be kept up to date if you want to keep your policy valid. However, you don’t need to pay them if you’re receiving a benefit. You may be able to pause your premiums for up to 12 months if:

  • you take unpaid leave
  • you become unemployed
  • you go overseas to work
  • you experience financial hardship.

You may also be able to pause your premiums if you’re on maternity or paternity leave, but this all depends on the insurer you choose.

If you have to pause your premiums, it generally means you’re not covered for that period. But it also means that once you start paying them again, you won’t need to go through any application process.

You can pay for your income protection insurance in two ways: either with stepped or level premiums.

With a stepped premium, your premium is recalculated each year on the policy’s renewal date. This means each year your premiums will generally increase.

Level premiums involve paying a higher premium at the start of the policy but changes to the cost are not based on your age. This means any price increase occurs more slowly over time.

This depends on what policy you choose to take out and what the insurer has on offer. Some insurers will only accept your claim if you’re unable to do your usual occupation, while others may cover you for any job which you’re suited for based on your education, training and experience.

Other insurers may only pay out for a set period if you’re unable to pursue your own occupation during that time, and then only continue to provide payments if you are then unable to work in any occupation.

Most income protection policies are flexible. However, if you apply for more cover or want to reduce a waiting period, your insurer may need to assess this before accepting the change.

You can increase or decrease your amount of cover at any time if your earnings rise or fall. To increase your income cover, you usually need to confirm:

  • your occupation, employment status and number of hours worked each week
  • your new income
  • your health status. 

If you reduce your amount of cover, benefit period or increase your waiting period, you may not be able to reverse these at a later date.

If you need to make a claim, you must notify both your employer (unless you are self-employed) and your insurer as soon as possible as there are time limits around lodging a claim. Your insurer will send you the relevant forms, and if your claim is accepted, you will be paid monthly in arrears. Your claim will also be reviewed every month to determine your ongoing eligibility. This may include you needing to provide a doctor’s report.

In some circumstances - yes. If your policy sits outside of your super fund, you may be entitled.  The Australian Taxation Office (ATO) states that if you take out a policy from an approved Australian provider, you can claim the cost of premiums you pay for insurance against the loss of your income. 

However, you should seek tax advice that is specific to your personal circumstances from a tax adviser or registered tax agent before assuming you will be able to make a tax deduction.

Want to protect your income from the unexpected?

Discover Ezicover Income Protection

We’ve partnered with Zurich Australia - one of Australia's largest and most experienced life insurers - to help you take care of yourself and the ones who rely on you.

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This information is current as at date of publication and is subject to change.

The issuer of this information is ANZ. While ANZ has taken care to ensure that this information is from reliable sources, it cannot warrant its accuracy, completeness or suitability for your intended use. To the extent permitted by law, ANZ does not accept any responsibility or liability arising from your use of this information.

ANZ has entered into a long-term strategic alliance agreement with Zurich Australia Limited (Zurich), ABN 92 000 010 195, AFSL 232510 of 118 Mount Street, North Sydney, NSW 2060, the issuer of Ezicover insurance products. Ezicover is a registered trademark of Zurich. The issuer of Ezicover insurance products is not a Bank. Although ANZ distributes these products, these products are not a deposit or other liability of ANZ or its related group companies. 

Australia and New Zealand Banking Group Limited (ANZ) ABN 11 005 357 522 AFSL 234527 is an authorised deposit taking institution (Bank) under the Banking Act 1959 (Cth). The issuers of these products are not Banks. Although ANZ distributes these products, these products are not a deposit or other liability of ANZ or its related group companies. None of them stands behind or guarantees the issuers or the products. 

This information is of a general nature and has been prepared without taking account of your objectives, financial situation or needs. You should consider whether the information is appropriate for you having regard to your objectives, financial situation and needs. 

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