Here’s the truth: there’s no neat, one-size-fits-all number when it comes to income protection insurance–and any broker that tells you otherwise is probably more interested in a quick policy sale than actually protecting your livelihood.

So, let’s break it down properly.

First, What is Income Protection Actually For?

Income protection insurance steps in when you can’t. It’s specifically designed to replace a portion of your income if you’re unable to work due to illness or injury, up to 70% of your regular pay. It’s not designed to make you rich, but what it does do is give you breathing room–enough to keep the lights on, the rent/mortgage paid, and food on the table while you prioritise getting back on your feet.

But how much do you really need? That’s where it gets personal.

Start With Your Monthly Essentials

This is exactly where most people underestimate things. Income protection isn’t just about covering your lost salary, it’s about helping you manage your basic needs, such as:

• Rent or mortgage payments
• Groceries
• Utility bills
• Petrol or public transport
• Phone and internet bills
• Kid’s school fees (if that applies to you)
• Debt repayments (credit cards, loans, etc).

Now, add a bit of buffer room. You might be spending more at home if you’re recovering, i.e. extra heating, takeaway meals, medical appointments. Likewise, don’t forget to take into account private health insurance premiums if you’re paying them out of pocket.

Tally that all up. The sum is the bare minimum you need your income protection policy to cover each month.

Now Consider Your Lifestyle

Not everything you budget for is essential, but it still matters. Most people don’t want to downgrade their lifestyle while recovering, and frankly that’s fair enough. You’re already off work, dealing with doctors, and stuck at home. You don’t want to also cancel your monthly subscriptions, give up your streaming services, or feel like you’re losing more than you already have.

We’re not suggesting that you be able to cover every last luxury,but aim for enough coverage that you can maintain a sense of normalcy in your life. If the ultimate goal is to recover and return to work, keeping some semblance of your usual life makes that transition much easier, both mentally and emotionally.

What’s Your Current Income?

Income protection is usually capped at a percentage of your pre-tax income, oftentimes at 70% or less. Some policies might offer more, particularly if they include super contributions.

For instance, if you’re earning $6000 per month before tax, your monthly benefit might max out at $4200. That’s what you’ve got to work with. Now compare that against your monthly expenses and lifestyle costs? Is it enough?

If not, you might want to look at additional policies, trauma insurance, or even consider topping up with savings or a rainy-day fund.

Consider the Waiting Period

The waiting period is how long you’ll need to wait before your policy starts paying out. Common waiting periods tend to be 30, 60, or 90 days long.

The longer the wait, the cheaper the premium. But the real question is: how long can you realistically go for without an income?

If you’ve got a decent amount of sick or annual leave built up, you might be able to get away with a longer waiting period, but if you’re self-employed, casual, or don’t have that safety net, you’ll want a shorter waiting period, even if it might cost more.

How Long Should It Pay Out For?

This represents your benefit period. Some policies pay out for a maximum of two years, while others may cover you till you’re 65. The longer the benefit period, the higher the premium, but again, it depends on your job, health, and financial plan.

For instance, if you’re in a trade or physically demanding role, and an injury could take you out long-term, a two-year policy probably won’t cut it. Likewise, if you’re still early in your career and building up assets, you might want the reassurance of longer cover.

Don’t Just Pick a Policy and Forget It

Your income protection needs aren’t static. Got a pay rise? Had a kid? Maybe you bought a house? Your policy should change with your life. A lot of people set up their income protections when they first get a job, and then never look at it again.

You should at least be reviewing your cover every couple of years, or any time there’s a major life change. Otherwise, you might find yourself uninsured just when you need it most.

So, How Much Do You Really Need?

At the very least, enough to cover your core monthly expenses–rent, mortgage, food, utilities, and/or debt repayments. That’s a non-negotiable. From there on, it depends on how much of your lifestyle you want to protect and how long you could survive for without a stable/regular income.

The good news? You don’t have to figure this out all alone.

At Morgan Insurance Brokers, we’ve helped tradies, business owners, freelancers, and families all across Australia get the right income protection insurance policy for their needs. We’ll work closely with you to tailor a policy that’s grounded in your real-life numbers, not just what some insurers form says you might need.

Whether you’re just starting out or reassessing after years on the same policy, we’ll help match you with the right cover, one that helps you maintain as much normalcy as possible when life throws you a curveball.

Contact us today for more information on how we can help you.