Australia Income Protection Calculator
Estimate your Australian income protection benefit (capped at 75% under APRA 2021 rules) and premium, plus the Section 8-1 tax deduction for premiums paid outside super.
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WC=white-collar · AA=light manual · BC=blue-collar · HR=heavy risk
Income Protection Benefit
Monthly Benefit
A$7,500
75% of gross income — APRA max 75% from Oct 2021
Annual Premium
A$2,484
Monthly Premium
A$207
Premium % Income
2.07%
APRA Cap Applied
No
Tax Treatment
Outside super (personally held): premium is tax-deductible to the individual under Section 8-1 ITAA 1997 as an expense in earning assessable income. Benefit paid is taxable as ordinary income. For a 37%-bracket taxpayer, the after-tax cost of a $2,400/yr IP premium is effectively $1,512.
APRA October 2021 Changes
APRA prohibited agreed-value IP contracts from 31 March 2020 and capped replacement at 90% for first 6 months then 70%. Insurers settled at 75% industry-wide. Income is reassessed at claim time based on last 12 months of actual earnings. If you bought a legacy agreed-value policy before April 2020, you can continue it — but once lapsed, cannot be reinstated under the old terms.
What Income Protection (Salary Continuance) actually does
Income Protection replaces up to 75% of your gross income if illness or injury stops you working — paid monthly after a waiting period, for a chosen benefit period (typically to age 65). It is arguably the single most important cover for working Australians: your ability to earn is usually worth more than your home.
The October 2021 APRA changes
APRA identified IP as financially unsustainable and forced insurers to stop selling "agreed-value" contracts from 31 March 2020. From 1 October 2021: benefits capped at 90% for the first 6 months, tapering to 70% thereafter (industry settled around 75% standard). Income is reassessed at claim time from your last 12 months of actual earnings. Premiums fell but policies became less generous.
Tax: Section 8-1 ITAA deduction
For policies held personally (outside super), the premium is tax-deductible under Section 8-1 ITAA 1997 — the premium is "incurred in earning assessable income" (the income benefit). On a 37% marginal rate, a $2,400/yr premium costs effectively $1,512 after tax. The benefit when paid is taxable as ordinary income. Inside-super IP: premium paid from super balance (fund gets 15% deduction); benefit is assessable when drawn.
Waiting period and benefit period trade-off
Shorter waiting periods (14-30 days) cost 25%-50% more than 60-90 day waits. The 90-day waiting period is the sweet spot for most — hold 3 months of emergency savings and save ~20% on premiums. Benefit period to age 65 costs ~2× a 5-year benefit but dramatically reduces the risk of running out during a long-term claim (average AU claim length is 18 months, but tail claims run 10+ years).
Common questions about Income Protection
What is the APRA 75% income-protection cap?+
Since October 2021, new IP policies sold in Australia are capped at 75% of pre-disability income (70% after 2 years on claim for many insurers, with up to 5% contributed to super). This ended the "agreed value" era where salespeople could sell policies paying 85%-100% of income — which paradoxically reduced incentive to return to work. Existing agreed-value policies were grandfathered; new applications are all indemnity and capped.
Are IP premiums tax deductible in Australia?+
Yes — IP premiums paid from your after-tax income (outside super) are deductible under ITAA Section 8-1 because the benefit is assessable income. This is a significant cash-back: a $1,800/yr premium at 37% marginal tax returns ~$666 to you via your tax return. Premiums paid inside super are NOT personally deductible (the super fund benefits instead). Hold IP outside super to claim this deduction.
Stepped vs level premiums and benefit indexation?+
Stepped premiums reset by age annually; level premiums hold through the term. IP specifically sees steep stepped increases from age 45+ due to disability claims curve. Most policies offer CPI indexation on the benefit during claim — otherwise $6,000/mo today locks in forever, eroded by 20+ years of inflation. Always include Benefit Indexation + Claim Indexation on IP; it's worth the 5-8% extra premium.
What waiting period should I choose?+
The time between disability onset and first benefit payment. Options are typically 14, 30, 60, 90, or 180 days. 90 days is a common default: long enough to match most employer sick leave + a $10k-$20k emergency fund, which shaves premium ~30% vs 30-day waits. Going to 180 days saves more but creates a 3-month income gap many households can't handle.
Benefit period — 2 years, 5 years, or to age 65/70?+
Most serious IP claims last longer than 2 years (mental health, musculoskeletal, cancer recovery). A to-age-65 benefit period is the proper protection but costs ~60-80% more than a 2-year benefit. Compromise: 5-year benefit often picks up the bulk of claims for half the price of an age-65 policy. If budget allows and you're under 45, go to age 65.
Own-occupation vs any-occupation IP?+
Own-occupation pays if you can't perform the specific duties of YOUR job. Any-occupation pays only if you can't do any job you're qualified for — much harder threshold. Most Australian IP policies today are "any-occupation after 2 years" (own-occ for the first 24 months, then flips to any-occ). True own-occ-for-life policies are sold by some providers but priced 25%+ higher — worth it for specialised professionals (surgeons, pilots).
Can I hold IP inside super?+
Yes — many industry super funds offer default IP inside super (often called Salary Continuance). Pros: premium paid from pre-tax contributions. Cons: default cover usually caps at 75% of income up to a modest ceiling ($6-$10k/mo), typically 2-year benefit period only, and no personal tax deduction. For most mid-income households, hold a LARGER IP policy OUTSIDE super and claim the deduction, with the inside-super cover as a bonus.