Your income funds everything — the mortgage, the groceries, super, school fees. Income protection insurance keeps that running when you can't. But there's a gap between having a policy and having enough cover, and most people don't realise they're in it.
Run your numbers through the Income Protection Gap Calculator first. Then come back here to make sense of what you're looking at.
The hard ceiling: 70%
No Australian income protection policy will pay you more than 70% of your gross monthly income. That's been the industry standard for decades. It's there to make sure you still want to go back to work.
If you earn $8,000 a month, the most you'll ever get is $5,600. The other $2,240 is already gone before anything else is factored in.
Most people don't see this gap until they actually need the policy. They're used to spending the full 100%.
What you're actually deciding
Two separate things live inside this question:
- How much monthly benefit do I actually need?
- What waiting period and benefit period fit my life?
The dollar amount is straightforward. The structure takes more thinking, and it's where most Australians leave themselves exposed without knowing it.
Finding your monthly benefit target
Start with your gross monthly income and take 70% of it. That's your ceiling. Then ask:
- Do I have employer sick leave?
- Do I already have IP cover through my super?
- What's my bare minimum monthly spend?
Your cover gap is the shortfall between what you'd get now and what you'd need to not sink. The Income Protection Gap Calculator does this for you — plug in your income, your existing cover, your age, and it spits out the gap plus an indicative premium range.
Check your super fund's default cover
A lot of Australians have income protection buried in their super fund's default settings. It's usually modest. Check your fund's Product Disclosure Statement for:
- The monthly benefit amount
- The waiting period (group policies often sit at 90 days)
- The benefit period (usually 2 years)
- Whether it covers own-occupation or any-occupation disability
A financial adviser can tell you if what you've got is enough for your situation. The calculator just shows you the raw gap.
Waiting periods: matching policy to your savings
The waiting period is the stretch of time you're sick or injured before the policy starts paying. Common options: 14 days, 30 days, 60 days, 90 days, 2 years. Longer waits mean cheaper premiums. You're essentially covering that first bit yourself.
The right choice depends on how long your savings and sick leave can actually hold you:
| If your savings buffer is... | Consider a waiting period of... |
|---|---|
| Less than 1 month of expenses | 14 or 30 days |
| 1–3 months of expenses | 60 or 90 days |
| 3–6 months of expenses | 90 days |
| 6+ months of expenses (emergency fund solid) | 2 years (if combined with TPD cover) |
A 90-day waiting period is what most Australian professionals pick. Premiums stay reasonable, and it covers you if sick leave runs out.
One thing to avoid: taking a 2-year waiting period without also holding total and permanent disability (TPD) insurance. Two years of zero income while you're drawing down savings is brutal.
Benefit periods: the choice that bites people
The benefit period is how long your policy pays after you've claimed. Standard options: 2 years, 5 years, to age 65, to age 70.
Most people go for 2 years because the premiums are lower. The catch: average long-term disability claims in Australia run past 24 months. A serious back injury. Mental health that doesn't shift. Cancer treatment that takes longer than expected. These things keep people out of work well past the 2-year mark.
To age 65 is the real deal — you're covered for the whole period you'd normally be working. The premium's higher. But the insurance is actually doing what it's supposed to do.
For someone with a mortgage and kids, the maths look like this:
If you become unable to work at 40 with a 2-year benefit period: you've covered 2 of the 25 years to retirement. You're short by 23 years.
If you're covered to age 65: all 25 years are in.
That's worth a real conversation with a financial adviser before you cut your benefit period to save on the premium.
Agreed value vs. indemnity value
This matters most if you're self-employed or your income moves around year to year.
- Agreed value: the benefit is locked in at the start — even if your income drops, you get what was agreed. New agreed value policies aren't being issued in Australia anymore (APRA changed the rules), but policies taken out before 31 March 2020 are still active.
- Indemnity value: the insurer pays based on your income in the 12 months before your claim. If your income has dropped in the meantime — which can happen when you're ill — your payment might be less than you expected.
Most new policies are indemnity now. If you're self-employed, factor that into your cover calculation. Your insurable income at claim time might not match what you earn today.
Taxes: the 70% isn't take-home
Income protection benefits are taxed as ordinary income in Australia. So that 70% figure is before tax. You'll take home less, depending on your tax bracket.
Run a claim scenario through the Income Tax Calculator to see the actual cash. For someone on $120,000 a year, the difference between 70% gross and the after-tax amount adds up.
One offset: premiums on income protection outside of super are tax-deductible. Check with a tax professional or ASIC MoneySmart for your own situation — this is general information only.
A worked example
Priya, 38, project manager, Sydney
- Monthly gross income: $10,000
- Existing IP cover through super: $3,000/month (90-day waiting period, 2-year benefit period)
- Mortgage repayment: $3,200/month
- Essential monthly expenses: $6,500/month
Maximum insurable: 70% × $10,000 = $7,000/month
Gap: $7,000 − $3,000 = $4,000/month uninsured at the ceiling.
But Priya actually needs $6,500 to keep things running. Super pays $3,000. If she's off for more than 2 years, it stops. She's exposed on both the amount and how long it lasts.
Run these through the Income Protection Gap Calculator and it surfaces immediately — no phone calls needed.
Questions for a financial adviser
The calculator shows you the gap. An adviser can help with:
- Whether retail IP or super-fund group cover works better for you
- The right waiting and benefit period for your job type
- Whether agreed value applies to any existing policies
- How IP sits with your TPD, life insurance, and workers' comp
- Whether it's better to pay premiums inside or outside super
This article is general information only and does not constitute financial advice. Your circumstances are individual — a licensed financial adviser can assess your specific position.
What a policy actually costs
Premiums are not a quote until an insurer underwrites you. Age, occupation, smoking and the waiting and benefit periods move the price more than the headline gap does.
As a planning figure already used on this site: someone earning $8,000 a month at 40, with no existing cover, a 30-day wait and benefits to 65, has a ceiling of 70%, so $5,600 a month is the most that can be insured. With nothing in place, that whole $5,600 is the gap. At 40, closing a gap of that size has been in the rough range of $314 to $510 a year — about $6 to $10 a week against $96,000 of annual income. Treat that as an age-band illustration, not a price. Run your own income, age and periods in the Income Protection Gap Calculator.
A standalone premium paid outside super is generally tax-deductible. At a 37% marginal rate, a $3,000 premium costs about $1,890 after tax. Benefit payments are assessable income. The Income Tax Calculator shows how a benefit, or the deduction, lands in a given year.
Inside super or outside it
Cover inside super is paid from contributions, so it does not come out of take-home pay. The trade-off is the product. Benefit periods inside super are commonly capped at two years, and you have to meet a condition of release before the money can be paid to you.
Benefits from a super-held policy are taxed as a super income stream, not as ordinary salary. The rate depends on your age and on how the fund splits the payment. ASIC MoneySmart and the ATO's income-stream tables are the references; the calculator's after-tax line changes once you pick the right treatment.
A policy you hold yourself can run to age 65, the premium is generally deductible, and payments come to you without a super release. Anyone who wants cover that lasts as long as the mortgage usually ends up outside super for at least part of it.
The waiting period in dollars
A 90-day wait on a $7,000 monthly benefit means covering about $21,000 of living costs from sick leave, annual leave, savings and any Centrelink payment before the first dollar arrives. A three-month emergency fund is used up on the day the policy starts. The Emergency Fund Calculator sizes that buffer; the Financial Health Check maps liquid savings against the monthly bills.
Full-time staff generally accrue 10 days of sick leave a year. Add accrued annual leave and savings you can actually touch — not super, and not a term deposit you would not break. That total, in months, is the longest wait you can honestly choose.
What the calculator cannot tell you
The numbers are the gap, the buffer and the benefit period your mortgage needs. They are not:
- Your occupation class. A trade and a desk job are priced differently, and the product disclosure statement is where that lives.
- Whether disability means "own occupation" (you cannot do your job) or "any occupation" (you cannot do any job you are reasonably suited to). That definition decides claims.
- Exclusions for pre-existing conditions or a shorter benefit period on mental health. Many policies cover mental health; some cap it. Read the PDS.
- The premium for your age, health and smoking status.
If your income moves around — contracting, a business, a year of parental leave — an indemnity policy uses recent earnings, sometimes the best 12 months of the last three. A low year before a claim can shrink the benefit. Tell the insurer before you cut your hours; reinstating cover later can mean fresh underwriting.
Who feels the gap first
The shortfall matters most if you are the only income, if a mortgage does not pause when you are ill, if you are self-employed and have no sick leave, or if you have less than three months of expenses set aside. Employer sick leave of two to four weeks does not cover a year off. Workers' compensation, sick leave and Centrelink are usually offset against the benefit, so the total from every source still stops at 70%.
If you are also asking what your family would need if you died rather than if you lived and could not work, that is a different sum — the Life Insurance Needs Calculator. A year of missed super contributions shows up later in the Super Balance Projector.
FAQ
How much income protection insurance do I need in Australia?
The maximum any Australian policy will pay is 70% of your gross monthly income. Your actual target depends on existing cover (including any default IP through super), monthly expenses, and how much risk you'll self-insure through savings. Use the Income Protection Gap Calculator to calculate your specific gap.
What is the best waiting period for income protection in Australia?
It depends on your savings buffer and sick-leave entitlements. A 90-day waiting period is the most common for salaried staff — it balances premium cost against the realistic risk of sick leave running out. If you have three to six months of expenses in savings, 90 days is a reasonable start. If your buffer is under one month, 14 or 30 days gives more protection.
Are income protection benefits taxable in Australia?
Yes. Benefits paid outside super are treated as assessable income and taxed at your marginal rate. So the 70% benefit is not your take-home — you'll receive less after tax. Premiums on policies held outside super are generally tax-deductible. Confirm your specific position with a tax professional or the ATO.
What is the difference between a 2-year and to-age-65 benefit period?
A 2-year benefit period means your policy stops after 24 months of continuous disability. To age 65 means it pays until retirement — covering the full span of a serious long-term disability. To age 65 carries a higher premium but provides genuine long-term protection. For anyone with a mortgage or dependants, the 2-year option carries significant risk if disability stretches past the benefit period.
Does income protection cover mental health conditions?
Many Australian policies do cover mental health, though terms vary — some policies have separate waiting periods or benefit-period caps for mental health claims. Check the Product Disclosure Statement for your specific policy. Your insurer's PDS and a financial adviser are the authoritative sources for your individual cover.