Last month, Sarah broke her ankle playing netball on Saturday afternoon. Without the ability to drive or stand for long periods, her job’s impossible right now. Workers’ compensation? Won’t touch it. Why? The injury didn’t happen at work.
She’s one of the lucky ones. She has income protection insurance.
According to Insurance Watch, fewer than one in three working Australians have income protection insurance1 despite most being able to claim the premiums as a tax deduction.
That’s a lot of Australians one accident away from financial stress.
The workers’ comp reality check
Here’s what catches most people off guard: 75% of injuries in Australia happen outside of work2.
Workers’ compensation only covers you if:
- The injury or illness occurred at work.
- You can prove it was work-related.
- You’re an employee (not self-employed or a contractor).
According to the Australian Bureau of Statistics, 47% of Australians who suffered a work-related injury or illness received no financial assistance in 2017/183. Even when it should apply, workers’ comp doesn’t always deliver.
Income protection, by contrast, can cover:
- Work-related injuries AND injuries anywhere else.
- Illness (cancer, heart disease, mental health conditions).
- Self-employed individuals and contractors.
- Accidents on holidays, at home, or while playing sports.
Think of workers’ comp as a narrow safety net with holes. Income protection is the safety net underneath that catches what falls through. Income protection can be held within your superannuation account, with the premiums being deducted from the superannuation account OR personally, with premiums being funded by your cashflow.
Who needs income protection?
You’re a prime candidate for income protection if you:
- Are self-employed or a contractor
You have zero workers’ comp coverage and no sick leave. Income protection can be critically important if you’re self-employed or a small business owner, as you may not have sick or annual leave. - Have a mortgage or significant debts
Your income disappears, but your repayments don’t. - Support a family financially
School fees, groceries, insurance premiums and medical bills keep coming regardless of your work status. - Work in higher-risk occupations
Tradies, healthcare workers, and anyone doing physical work, as you’re statistically more likely to need this. - Have minimal sick leave
Two weeks of sick leave won’t stretch to cover a serious illness or injury.
The numbers: What does it actually cost?
Here’s where it gets interesting. According to Finder’s analysis of 11 major Australian insurers, the average monthly premium for a policy with a $3,000 monthly benefit is $48.064.
For a 35-year-old office worker, that’s typically between $30 to $505 per month for basic coverage. However, carpenters pay around 77% more on average than office workers6 due to higher injury risk.
Here’s the critical part: Those premiums are generally tax-deductible when held outside of super. For someone on a marginal tax rate of 32% including Medicare Levy, that $50 monthly premium costs you around $34 after tax per month7.
The benefit? Income protection insurance can replace up to 90% of your pre-tax income in the first six months8, though most modern policies cover up to 70%. You can elect to have a benefit period of up to age 65 or shorter if you have a tighter budget for premiums.
Do the maths: If you earn $80,000 gross annually, that’s roughly $6,666 gross per month. At 70% replacement, you’d receive about $4,666 gross monthly. You’re paying $34 (after tax) per month 9 to protect an income of $4,666 per month. That’s a 137:1 return if you claim.
The quality factor
Not all income protection is created equal.
Recent industry data shows that the average claims acceptance rate for advised income protection insurance for 2024-2025 is 94.4%10, meaning policies arranged through financial advisers have high approval rates.
The average time for an income protection claim to be accepted was 1.6 months in 202411, with some insurers paying in as little as 1.3 months.
The bottom line
Workers’ compensation protects your employer. Income protection protects you.
The harsh reality is that most disabilities and illnesses that stop you from working aren’t covered by workers’ comp. You could be doing everything right, exercising, eating well, being careful, and still get blindsided by cancer, a car accident on your way to the shops, or a skiing injury on holiday.
Your income is probably your greatest asset. For less than the cost of a couple of coffees a week (after tax deductions), you can ensure that assets stay protected even when you can’t work.
The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.
1 https://www.insurancewatch.com.au/insurance-claims-statistics.html
2 Workers Compensation Insurance versus Income Protection Insurance – Experien Insurance
3 Can I Claim Workers Compensation & Income Protection Insurance? | TAL
4 https://www.finder.com.au/income-protection/monthly-cost-of-income-protection
5 https://morganinsurancebrokers.com.au/what-is-the-average-cost-of-income-protection-insurance-in-australia/
6 https://www.finder.com.au/income-protection/monthly-cost-of-income-protection
7 Assumptions: Gross annual income of $135,000, personal income tax rates and thresholds for the FY 2025/2026.
8 Income protection insurance – Moneysmart.gov.au
9 Assumptions: Gross annual income of $80,000, personal income tax rates and thresholds for the FY 2025/26.
10 2025 Life Insurance Claims & Disputes Statistics
11 https://www.insurancewatch.com.au/insurance-claims-statistics.html