Explainer: what is income protection insurance and does it protect you during COVID-19

Despite the easing of restrictions, COVID-19 is continuing to play havoc with the economy. Recently released unemployment figures, tell a harrowing tale of growing unemployment. 

In fact, May figures of 85,700 people unemployed during the month, were the second highest unemployment figures ever recorded in the country, behind the highest recorded figures from April this year.   

It’s bleak, but you may have income protection insurance, that in some cases could alleviate financial stress.  

What is income protection insurance?

Income protection insurance replaces 85 per cent of your income if you are unable to work due to illness or injury.

Unfortunately, it is not applicable to those who have been stood down or laid off.

Yet, it can help if you have contracted COVID-19 and are unable to work for a longer period of time than what your regular leave would generally cover.

Most insurers can and do provide some form of income protection. Yet, each insurer will have their own sets of terms and conditions. It is important to read the PDS before you commit.

For instance, Medibank Income Protection offers a monthly Income Benefit if you suffer a Disability. There are two types of Medibank Income Protection and what you are eligible for depends on your current employment status. 

If you work for at least 20 hours per week in permanent paid employment or self-employment, you are eligible for Standard Cover. If you suffer a Disability under this cover and can’t work in your usual occupation for longer than the waiting period, you will receive a monthly Income Benefit. 

If you work less than 20 hours per week, paid or unpaid, you are eligible for Essential Cover. If you suffer a Disability under this type of cover and can’t perform certain essential day to day activities for longer than the Waiting Period, you will also receive a monthly Income Benefit.

Of course, it is all subject to terms and conditions. 

In comparison, Insuranceline may be less rigid with its terms and conditions. Insuranceline allows you to choose the length of your waiting period. You can choose a waiting period of 14, 28, 60 or 90 days for Sickness or Injury claims. You will receive your payout after your claim is approved and your waiting period has finished. Payouts are one month in arrears. You can also choose your own payout period between six months and five years, with tax deductible premiums available from just a dollar a day for lower levels of cover.

Income protection insurance is also generally provided by your superannuation fund.

AustralianSuper will pay a portion of your regular wage while you are unable to work due to illness, injury or accident. Each unit of income protection cover with AustralianSuper provides a benefit of $500 per month before tax. The income protection benefit is available for up to two years after your illness or injury. The Australian Super Income Protection policy also covers you until you reach the age of 70.

AustralianSuper allows you to nominate the cover amount up to 85 per cent of your salary, covers rehabilitation expenses and allows you to increase cover as and when you need.  

That’s all well and good, but are you really protected for COVID-19 issues?

That really depends on your policy, however if you do contract the virus and cannot work, it should come under the definition of illness.

For instance, Insuranceline has no general exclusions for COVID-19 in any of its individual life insurance policies. 

If you are currently on claim, you are fully covered for COVID-19 and will continue to be paid in line with your policy terms and conditions. 

However, not all insurers are equal. 

Whether you are covered or nor, depends on the income protection policy that you hold and will be assessed via the terms and conditions of your policy. 

Check with your insurer as to whether illness relates to COVID-19 or not.

Redundancy cover

If you are not covered via your income protection insurance, you may be covered through Redundancy insurance.

Redundancy insurance provides financial benefits if you unexpectedly lose your job because of redundancy or retrenchment. .

This is not offered by every and is generally not a feature of retail income protection policies, however it is worth asking your provider whether they offer this cover.

It may also be worth shopping around for insurers that can better protect you if you lose your job. 

Compare car and home insurance here.


This update is not financial advice. This article is general news and information.

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