incomeprotectioncover.com.auIncome protection, read from the insured’s side

A guide published by Dotto

Income protection cover: how it works

Income protection is insurance meant to pay you part of the income you lose when illness or injury stops you working. This site reads a policy from the side of the person it covers: where it is held, the duty the law places on the insured before the contract is made, and what happens once work stops. It is published by Dotto from the Insurance Contracts Act and the official pages listed at the foot of each page.

General information, not financial advice. The official place to check is Moneysmart’s page on income protection insurance; the law itself is on the Federal Register of Legislation.

The income line

Moneysmart describes the usual shape of a policy: when you cannot work because of illness or injury, it generally replaces a percentage of your pre-tax income, such as 75% or 90%, and it works the benefit out from what you earned in the 12 months before. Drawn as a line, it looks like this.

An illustration of income over time under an income protection policy Pay runs at a full level, stops when illness or injury begins, stays at nothing through the waiting period, then resumes at a lower level through the benefit period.
  1. Pay from workFull pay, with the policy already in place.
  2. Waiting periodNo payments yet. Most policies offer a wait of 14 days to two years.
  3. Benefit periodMonthly payments while you remain unable to work; most policies offer two or five years, or up to an age such as 65.
A drawing of the idea, not a real policy or a forecast. The dashed line is the pay that stopped; the shaded band is the part a policy usually replaces, drawn at 75%, one of Moneysmart’s examples. The band runs to the edge of the drawing, but payments last only for the benefit period and only while you remain unable to work. The periods in the legend are Moneysmart’s examples, and every policy sets its own definition of disability and its own conditions for a claim.

Five guides, in the order a policy is lived

  1. Inside or outside super

    Many super funds offer income protection by default, with premiums taken from the super balance; a policy held outside super is paid for from your own pocket. The guide sets out what changes, including tax as the ATO states it.

  2. The duty when you apply

    Section 20B of the Insurance Contracts Act, read in full: the duty to take reasonable care not to make a misrepresentation, and what the Act weighs.

  3. If something was not disclosed

    What sections 27AA to 29 and 31 of the Act provide, with their conditions, when an answer given before the contract turns out to be wrong.

  4. Waiting and benefit periods

    The two clocks of a policy, the other features Moneysmart lists, and the measures APRA set out for disability income insurance.

  5. Claims and complaints

    Lodging a claim, the time a decision may take, and the path from the insurer’s own complaints process to AFCA.

A duty on the insured

Section 20A of the Insurance Contracts Act 1984 gives consumer insurance contracts, and proposed ones, a Division of their own. In it, section 20B places a duty on the insured before the contract is entered into:

“Subject to this Act, an insured has a duty to take reasonable care not to make a misrepresentation to the insurer before the relevant contract of insurance is entered into.”

Insurance Contracts Act 1984, section 20B(1)

The same section adds that leaving a question unanswered, or giving an obviously incomplete or irrelevant answer, does not by itself mean the insured made a misrepresentation. Moneysmart’s plain version for applicants is to answer honestly, because leaving out important details can lead an insurer to change or cancel the cover or refuse a claim.

Tax, as the ATO puts it

The ATO says only premiums paid to protect your income (salary and wages) are deductible, and that no deduction can be claimed for a policy held through your super fund where the premiums are deducted from your contributions. A payment received to replace salary and wages goes in your tax return, whether it arrives regularly or as a lump sum. That is the ATO’s page as it read on 8 October 2026; it is the place to check for the year you are lodging.

Where the official word lives

Moneysmart, ASIC’s website for consumers, has a page on income protection insurance. The ATO keeps the tax rules on its income protection page. The Insurance Contracts Act 1984 is on the Federal Register of Legislation. For a dispute about a claim that cannot be settled with the insurer or super fund, Moneysmart points to the Australian Financial Complaints Authority (AFCA) for free, independent dispute resolution.

Income Protection Cover is a guide published by Dotto, written from the sources listed at the foot of each page.