How Much Income Protection Insurance Do You Actually Need?

📊 How much cover can you actually get?🔗

Income protection doesn't replace 100% of your salary, it never did. Since 1 October 2021, APRA rules cap new retail policies at 90% of pre-disability earnings for the first six months of a claim, dropping to 70% after that. Some insurers also apply their own dollar cap on very high incomes, commonly around $30,000 a month, though this varies by provider rather than being a uniform regulatory limit.

Why not 100%? Insurers want you to retain a financial incentive to return to work, the gap is intentional. If you want the full rundown of how the product works before crunching numbers, our income protection insurance guide covers the basics.

🧮 Step 1: calculate your coverage amount🔗

Most people insure to the maximum available, there's little point leaving cover on the table if the premium is affordable.

⏳ Step 2: choose your waiting period🔗

The waiting period is the gap between stopping work and your first payment, typically 14, 30, 60 or 90 days. This single choice has the biggest impact on your premium, a 30-day wait can cost meaningfully more than a 90-day one for otherwise identical cover.

Count your actual runway before choosing: sick leave balance (full-time employees accrue 10 days a year under the Fair Work Act), annual leave you could use, and emergency savings. If you have no paid leave entitlements at all, a real and growing group, around one in five Australian employees don't have paid leave according to the ABS, rising to close to half of part-time workers, a shorter waiting period is worth the extra premium. For a deeper dive into how waiting periods and benefit periods interact, see our full guide to waiting periods and benefit periods.

📅 Step 3: choose your benefit period🔗

The benefit period is the maximum time payments continue, 2 years, 5 years, or to age 65. Most claims resolve within two years, but the ones that don't, serious illness, chronic conditions, mental health, are exactly the ones that do the most financial damage.

💰 What does it actually cost, after tax?🔗

Finder's September 2025 data across 11 major providers puts the average premium at around $48 a month for a $3,000/month benefit, ranging roughly $34 to $103 depending on the insurer. Your own quote will vary by age, income, occupation, health, and the waiting and benefit periods you choose.

If you hold the policy outside super, premiums are tax-deductible. At a 32% combined marginal rate (30% plus the 2% Medicare levy, the rate for incomes between $45,001 and $135,000 in 2025-26), a $180-a-month premium saves around $57.60 a month in tax, an after-tax cost of about $122.40. That's a meaningfully lower real cost than the sticker price suggests.

🧭 Putting it together: a simple framework🔗

1. Target amount: 70-90% of your gross monthly income, depending on how far into a claim you are.

2. Waiting period: the longest you can comfortably bridge with leave and savings, every extra day lowers your premium.

3. Benefit period: to age 65 if your job is physical or you have dependants and debt, 5 years is a defensible middle ground otherwise.

4. After-tax cost: multiply your premium by (1 minus your marginal tax rate) if held outside super, that's your real cost.

5. Fit your budget: if to-age-65 is too expensive, step down to 5 years before cutting cover entirely, a gap in cover is worse than imperfect cover.

🎯 The essential: Don't forget to check what you already have through super before buying a standalone policy, our super vs standalone guide covers exactly this trade-off.

❓ Frequently asked questions🔗