Wealth Advisors to Business and Families - Since 1985
Hoddinott Insights
Welcome to the Hoddinott Consulting blog, where we share insights on market trends, economic developments, and key financial issues shaping today's business environment.
Income Protection Insurance: Is it still worth the premiums?
July 2026
Income protection insurance is a financial tool that’s essential for some people, ‘nice to have’ for others, and possibly quite unnecessary for a third group. In other words, there’s no one-size-fits-all answer to whether the premium cost justifies the risk. It depends on your circumstances, so it’s worth examining what the cover provides and the factors that should influence your decision-making.
What is income protection insurance?
Income protection insurance is meant to replace your income, based on your annual earnings in the year before a serious illness or injury that prevents you from working. It can pay up to 90% of your pre-tax income for the first six months of your disability and up to 70% for a further period.
Note that you will only be covered if you lose your income for medical reasons, not for redundancy or other employment termination, or for taking unpaid leave. Policy terms will vary, so it’s important to read the Product Disclosure Statement.
Cost of income protection premiums
Premiums will vary based on your age, gender, occupation, health, lifestyle, benefit payment period, how long you choose to wait before payments start, and whether you decide on variable or age-stepped premiums. This means the cost can range from as little as $35 per month to over $100 per month. You would need to compare quotes covering your own situation from several insurers.
Reasons for choosing income protection insurance
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Safety net - Having a security buffer when your income stops, so that you can still pay bills and make mortgage repayments, is especially important if you don’t have a large amount in emergency savings.
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Self-employed - Small business owners and other self-employed people may not be able to rely on sick or annual leave if they are unable to work
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Primary breadwinner with dependants - If you’re the main or only income earner with a family that relies on your earnings, losing your income for an extended period could be devastating.
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Risky occupation - Although you’ll pay more in premiums, being covered for an occupation with an above-average risk of illness or injury is reassuring.
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Peace of mind - Financial stress can hinder your recovery from illness or injury. Protecting your income will reduce the additional anxiety.
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Personalised policies - You don’t have to pay for other policyholders’ potential problems. Premium costs will depend on your own situation and choices.
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Tax deductible - Income protection premium costs, for policies held outside your superannuation account, are effectively reduced by the fact that they can usually be claimed as a tax deduction.
Reasons for deciding against income protection insurance
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Age and health status - Young, healthy individuals with no dependants may feel less likely to need this type of insurance.
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Waiting periods - Some policies have long, fixed waiting periods before you can claim, by which time you may be back at work.
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Exclusions and complexity - Conditions, definitions and exclusions regarding certain occupations and types of disability may make it difficult for you to claim.
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Insurance through superannuation - Total and Permanent Disability (TPD) cover may be automatically provided via your superannuation, and you may also have the option to have Salary Continuance Insurance premiums deducted from super contributions made by your employer. However, this type of insurance is less flexible and is not tax-deductible.
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Large emergency savings fund - If you have deep savings and/or minimal financial obligations, you may regard income protection insurance as unnecessary.
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Low risk occupation - Anyone pursuing a desk-bound, low stress occupation as an employee is less likely to make a claim.
Get some help before you decide
With so many pros and cons, not only is it clear that income protection insurance is extremely worthwhile for some but questionable for others, it’s also plain that deciding whether it’s right for you can be complicated. However, your financial adviser can help you create a budget to clarify your financial situation should your income be interrupted, and can also advise on policy types, conditions and premiums.
Strategies to avoid income tax bracket creep in a rising wage environment
July 2026
You earn more money; you pay more tax. So far, so fair.
But what’s not so fair happens when your wage rise bumps your earnings into a higher tax bracket, even though your pay increase may only be in line with inflation. This is known as ‘bracket creep’, and the combination of inflation and a higher tax rate can mean you have less purchasing power than before your pay rise.
However, you can avoid bracket creep by putting your earnings to work in a way that means they won’t be consumed by tax. Here’s how:
Concessional super contributions
Shift some of your income from a higher marginal tax rate into the concessional superannuation environment, where it is taxed at 15%. You can do this by salary sacrifice via your employer, or by making deductible personal contributions of no more than the concessional cap.
Company or trust structures
You may have the opportunity to receive income through a company or a family trust. Small-to-medium-sized businesses (annual turnover of less than $50M) are taxed at 25%. Family trusts can distribute income to family members on a lower tax rate. Be aware, though, of compliance costs and anti-avoidance rules.
Move income or expenses into a different year
Consultants, business owners and investors may be able to control the timing of taxable income and tax-deductible expenses. Income could be deferred until the following year if you expect your income to fall. It’s also possible to claim current-year deductions for some types of prepaid expenses.
Negative gearing
Rental property losses and the cost of borrowing to invest in shares can be offset against your employment income, in a situation known as ‘negative gearing’. This could lower your marginal tax rate.
However, negative gearing should not be your primary investment motive: prioritise long-term returns such as capital gains.
Permitted income splitting
Although Australia, unlike some other countries, does not allow joint spouse tax returns, there are permitted ways to split income and thereby lower marginal tax rates, beyond the family trusts already mentioned. These include:
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Investing in the name of a lower-income spouse
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Paying your spouse a reasonable amount as a genuine working employee of your business, after obtaining financial advice about Personal Services Income (PSI) rules.
Tax offsets and rebates
Offsets and rebates don’t lower your marginal tax bracket, but they do reduce the amount of tax you will pay. You may be able to claim an offset for making a contribution to your spouse’s super, as well as an income-tested private health insurance rebate.
Tax-effective benefits
If possible, negotiate tax-effective benefits with your employer if you can afford to take them in lieu of taxable income increases. These might take the form of employer super contributions above the mandated 12% Super Guarantee rate, or fringe benefits such as a company car (although this may increase your Medicare levy or affect your eligibility for other government rebates or benefits).
Stay informed about tax changes
Plan ahead by staying up to date on proposed tax threshold adjustments.
Get professional advice
Don’t be too alarmed if a pay rise puts you in a higher tax bracket. Remember that it’s only the marginal extra income that is taxed at a higher rate, not your entire salary. But you can take a strategic approach by getting professional financial advice to help you shift your income into lower tax environments and maximise the effect of your legitimate deductions.