What this calculator does
Income protection replaces part of your income if illness or injury stops you working, and the two numbers that decide whether a policy actually works are the benefit percentage and the waiting period. The benefit is commonly capped around 70 per cent of income, which sounds like a shortfall until you compare it against what you actually need to spend rather than what you earn.
The waiting period is the one people underestimate. A thirty day wait on $72,000 of essential annual expenses means finding $5,918 before a single payment arrives, and a ninety day wait means $17,753. A longer wait cuts the premium, which is only a saving if the savings exist to cover it.
The formula
The monthly benefit is annual income times the cover percentage, divided by twelve. That is set against essential monthly expenses rather than against full income, because the question is whether the policy keeps the household running rather than whether it maintains your lifestyle. The savings needed to bridge the wait is simply daily essential spending multiplied by the waiting days.
| Term | Meaning |
|---|---|
| Benefit percentage | The share of income the policy will replace. Insurers commonly cap it around 70 per cent so that returning to work remains worthwhile. |
| Waiting period | The time between stopping work and the first payment. Also called the deferred or elimination period. |
| Benefit period | How long payments continue. Not modelled here, and it matters as much as the benefit itself. |
| Essential expenses | What the household must spend, as opposed to what it does spend. |
The inputs explained
| Field | What to enter |
|---|---|
| Annual income before tax ($) | Annual income before tax. Policies are usually written against pre-tax income. |
| Benefit as a share of income (%) | The share of income the policy pays. Check whether your policy caps it and at what level. |
| Waiting period (days) | Waiting period in days. Common options are 14, 30, 60 and 90, and the premium falls sharply as it lengthens. |
| Essential annual expenses ($) | Essential annual expenses: housing, food, utilities, insurance, loan repayments, transport. Not discretionary spending. |
| Other income during a claim ($/yr) | Other income that would continue during a claim, such as a partner's income or rental income. Some policies offset against this, so check the wording. |
When to use it
Choosing a waiting period
Compare the savings needed against what you actually hold in accessible savings. A ninety day wait is cheaper every year but only if $17,753 is genuinely available, and sick leave entitlements can cover part of it.
Checking the benefit is enough
The surplus or shortfall line is the one that matters. A benefit covering 117 per cent of essential expenses leaves room; one covering 85 per cent means finding the difference every month for as long as the claim runs.
Accounting for a second income
Enter a partner's income in the other income field. It may well close the gap, but check whether your policy offsets against it, because some reduce the benefit by other income received.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How much cover do you actually need?
Only the share of income covered changes.
| Cover | Monthly benefit | Monthly surplus or shortfall | Share of expenses the benefit covers |
|---|---|---|---|
| 40% | $4,000.00 | −$2,000.00 | 66.7% |
| 50% | $5,000.00 | −$1,000.00 | 83.3% |
| 60% | $6,000.00 | $0.00 | 100.0% |
| 70% | $7,000.00 | $1,000.00 | 116.7% |
| 75% | $7,500.00 | $1,500.00 | 125.0% |
What does a longer waiting period require?
Only the waiting period changes. The benefit itself is unaffected.
| Waiting period | Savings needed to bridge the waiting period | Monthly benefit | Monthly surplus or shortfall |
|---|---|---|---|
| 14 days | $2,761.64 | $7,000.00 | $1,000.00 |
| 30 days | $5,917.81 | $7,000.00 | $1,000.00 |
| 60 days | $11,835.62 | $7,000.00 | $1,000.00 |
| 90 days | $17,753.42 | $7,000.00 | $1,000.00 |
| 180 days | $35,506.85 | $7,000.00 | $1,000.00 |
Questions
Why do policies cap the benefit below full income?
To keep an incentive to return to work. A policy replacing the whole income, tax free in some cases, could pay more than working does, and insurers avoid that by capping the benefit.
Is the benefit taxable?
Commonly yes where the premium was tax deductible, and commonly not where it was paid from after-tax income. That reverses the real value of a given benefit, so it is worth confirming which applies to you.
What is the difference between this and total permanent disability cover?
Income protection pays a monthly benefit while you cannot work and stops when you return. Total permanent disability pays a lump sum when you are assessed as permanently unable to work. They cover different risks and are often held together.
Does the benefit period matter as much as the benefit?
Often more. A generous benefit that stops after two years is far weaker cover than a smaller one running to retirement age, and this page does not model the benefit period at all.
How should I set essential expenses?
List what the household genuinely cannot stop paying: housing, food, utilities, insurance, minimum loan repayments, transport, childcare. Leave out everything you could pause, since the point is the floor rather than the current lifestyle.
For a lump sum rather than a monthly benefit, see life insurance needs and human life value. For comparing what cover costs, premium per $1,000.