The Top 5 Common Misconceptions About Income Protection Insurance

Income protection insurance, you’ve probably heard of it, maybe even considered it, but chances are, it’s still sitting in the “I’ll look into that later” pile. And honestly? That’s understandable. It’s one of those things people often don’t prioritise until life throws a curveball.

But the thing is, a lot of the hesitation around income protection stems from common myths, the kind that get passed around in casual conversations or buried in Reddit threads.

Hence, let’s unpack five of the biggest misconceptions holding people back from getting the cover they might actually need.

One of the most persistent myths is that income protection is just for freak accidents, i.e. car crashes, falling off a roof, major trauma. And while it does cover serious accidents, it’s important to note that– that’s just a slice of the picture.

What many don’t realize is that most income protection claims are actually due to illness such as cancer, chronic fatigue, back pain, long-term Covid complications, and even stress and burnout. If you’re too unwell to work (mentally or physically) and you meet the policy’s conditions, income protection steps in.

Misconception #2: It’s Too Expensive for What You Get

Lots of people assume income protection is only for high earners. But here’s the thing: the pricing is actually quite flexible, and policies can be tailored to your budget.

The key factors that affect your premium? Age, occupation, smoking status, waiting period, and benefit duration. Want to lower your premium? Opt for a longer waiting period or a shorter benefit period.

And when you stack it up against losing your income for months (or longer), the value becomes pretty obvious. Even a modest payout, say 70% of your income, can help cover rent, groceries, school fees, or mortgage repayments when you’re off work.

Also worth noting? Income protection premiums are often tax-deductible, depending on how the policy is structured. That alone can make the cost much more manageable.

Misconception #3: Workers’ Compensation or Sick Leave is Enough

We get it, it’s easy to assume that your employer or the government has you covered. And to some extent, they do. But it’s rarely enough to cover long-term leave.

Workers’ compensation only kicks in if your injury or illness is directly related to your job, and even then, it can be limited. Sick leave, meanwhile, is often capped at a few weeks. It’s great for short-term recovery, but what if you’re unable to work for longer?

Income protection fills that gap. It’s not about replacing what you already have, it’s about complementing it.

Misconception #4: It Won’t Cover Mental Health Conditions

Mental health issues are one of the leading causes of workplace absence in Australia, and many insurers have responded by expanding their cover accordingly.

Mental health issues are one of the leading causes of workplace absence in Australia, and many insurers have responded by expanding their cover accordingly.

Today, most modern income protection policies do include mental health, provided it’s diagnosed and documented by a professional. That said, not all policies are created equal, and some may include mental health exclusions or stricter waiting periods.

What’s important here is clarity. If mental health cover matters to you (and honestly, it should), check the fine print or speak to an insurance broker. Better yet, disclose any relevant history upfront, that way, you know exactly what you’re covered for.

Misconception #5: “I Don’t Need It, I’m Young & Healthy”

When you’re young, you’re statistically less likely to claim, which means your premiums are lower and your cover options are wider. You’re also more likely to be approved without exclusions or loadings (higher costs) for pre-existing conditions.

Income protection is like an umbrella. The time to get one isn’t when it’s already raining. It’s while the sun’s still out.

No one likes to think about being unable to work. But for many Australians, it often happens unexpectedly. And when it does, it’s good to have income protection insurance. It’s essentially the difference between financial freefall and stability.

So, if you’ve been putting it off, maybe because of one of the myths above, now is a good time to rethink things. Talk to an expert, ask the right questions, and most importantly, read the fine print.

If you need assistance obtaining income protection insurance or have questions about the details, contact us to speak with one of our experienced brokers.