Calculator
Income Protection Gap Calculator
Income Protection Gap Calculator
Australian income protection benefits are taxed as income, benefits are commonly capped at 75% of earnings, and insurance held inside super is paid from your retirement savings. Premiums inside super may not be refundable as franking credits.
Monthly Protection Gap
$700
Protection Gap Analysis
Your existing cover pays $4,500/month against $5,200 of essential costs — a $700/month shortfall, or $42,000 over a 5-year benefit period. Your sick leave and savings comfortably bridge the 3-month waiting period. Closing the gap with retail cover on this shortfall would cost roughly $252 a year — note income protection benefits are taxable as income in Australia.
*Estimates your uncovered income shortfall from the figures you enter. Australian income protection benefits are taxable as income, commonly capped at 75% of earnings, and insurance held inside super is paid from your retirement savings. Indicative premiums are estimates only. Educational only — not insurance, tax or financial advice.
The Income You Are Actually Insured For
Income protection gap analysis answers a question most Australians have never asked: if a serious illness or injury stopped you working for a year or more, how much of your essential costs would actually be covered? Between paid sick leave, any default insurance inside super, and personal savings, the real coverage is almost always smaller than the policy brochure or the pay-slip suggests — and the gap is what you would fund out of nothing, month after month, during the hardest stretch of your financial life. Australia's system makes this a genuinely local calculation. Most workers have a modest default benefit inside their superannuation fund — but it is commonly capped at 75 per cent of earnings, its definition may be 'any occupation' rather than your actual role, and premiums are paid from the retirement savings you are trying to build. Income protection benefits are also taxed as income in Australia, unlike in many other countries. On top of that there is the waiting period — the months before any policy pays out — which must be bridged by sick leave and savings. This tool measures both layers: the waiting-period cash gap and the ongoing monthly shortfall under your current cover, so you can see exactly what is missing and what closing it would cost.
Two Gaps: the Waiting Period and the Monthly Shortfall
The calculator works in layers, matching how Australian insurance actually behaves. First it finds your usable monthly benefit: the existing cover you hold (sick pay, default super income protection, or a retail policy) is capped at 75 per cent of your monthly gross income — that cap is standard across Australian income protection products, so a stated benefit above it overstates what would actually pay. The monthly shortfall is then essential monthly costs minus that usable benefit, positive or zero. Second, the waiting period is modelled separately. For the waiting months before any policy pays, income must come from paid sick leave (weeks entered are converted to a dollar value at your monthly income) and emergency savings. If essentials × waiting months exceed that combined pool, the difference is the waiting-period cash gap — money that must come from nowhere, borrowed, or from a partner's income, before benefits start. Third, the total uncovered exposure multiplies the monthly shortfall by the benefit period in years, producing a lump-sum figure that is the honest price of the gap. An indicative premium is estimated at roughly 3 per cent of the covered income annually, the typical Australian retail pricing range, to give scale to what closing the gap would cost before tax.
Expert Insights
Default Super IP Is Not the Cover Its Name Suggests
A large majority of employed Australians assume their superannuation fund's default income protection is adequate cover. In practice these policies are frequently capped well below 75 per cent of earnings, carry restrictive definitions (often 'any occupation' rather than the role you actually do), and the premiums are quietly reducing the retirement balance they are sitting inside. Worse, many members cannot name the waiting period or benefit period of their own policy. The first step before buying anything is to read the actual product disclosure statement and compare its monthly benefit against your real essential costs — the gap is often larger than the brochure lets on, and this calculator will show the number.
Own Occupation vs Any Occupation Is the Definition That Decides Everything
The single most consequential feature of an Australian income protection policy is the definition of disability. Own-occupation pays if you cannot do your specific role; any-occupation pays only if you cannot do any role suited by education and experience. A surgeon with a hand injury qualifies under own-occupation and may not under any-occupation. Profession-specific workers — medical, legal, skilled trades, executives — are the group most exposed to this gap, yet the pricing difference is often modest. If you cannot name which definition your current policy uses, you do not actually know what you are insured for.
Waiting Period Length Is a Planning Lever, Not an Afterthought
A longer waiting period dramatically reduces premium — often by 40–60 per cent between a 1-month and 6-month waiting period — because you are self-insuring the early months. The right waiting period is the one you can genuinely fund from savings and sick leave, which is exactly the calculation this tool runs backwards. A 3-month waiting period makes sense if you hold three months of essentials in reserve; a 1-month waiting period is a signal that the reserve is thin. Choose the waiting period from the savings side first, then let the premium table reward the longer wait.
Actionable Tips
- 1
Read the Super Policy Before Assuming It Covers You
Log in to your superannuation fund portal and find the insurance section. Write down four numbers: the monthly benefit, the waiting period, the benefit period, and whether it is own or any occupation. Enter those into this calculator as your existing cover. A meaningful share of workers discover a benefit well below their essential costs, or a benefit period of only two years when a serious illness can last five or more. If any of those numbers fails the test, the gap is real and worth closing — this tool prices the shortfall before you talk to anyone.
- 2
Size the Emergency Fund to the Waiting Period First
Before adding any insurance premium, make sure sick leave plus emergency savings actually bridge your chosen waiting period. Multiply essential monthly costs by the waiting months and compare against the pool you have now. If the pool falls short, closing that gap with cash before paying for a shorter waiting period is usually the cheaper and more flexible fix — cash reserves can cover any income interruption, insurance covers only a defined illness or injury.
- 3
Quote the Gap, Not Just the Premium
When you speak to an adviser or insurer, lead with the dollar shortfall this calculator produces — not just the premium. 'I need to cover a $3,800/month gap with a 3-month waiting period' produces a sharply different quote conversation than 'what does income protection cost?'. Also ask for the quote both inside and outside super: premiums inside super draw from retirement savings but may be paid pre-tax from the fund's balance, while outside-super premiums are generally tax-deductible for individuals. The right structure depends on your marginal rate and cash position.
Real-World Examples
Rachel Found the Gap Behind Her 'Covered' Pay-Slip
Rachel, a project manager earning $128,000, assumed her default super income protection was adequate. The calculator showed a usable benefit of $4,800 a month after the 75 per cent cap applied to her actual earnings — against $6,400 of essential costs, a $1,600 monthly shortfall, and a waiting-period cash gap of $5,200 her savings would not bridge. She filled the waiting-period gap with a dedicated savings buffer and added a retail policy to close the ongoing shortfall. The premium for the top-up was far less than she had feared once she knew exactly what was missing.
Damon the Contractor Had No Waiting Period Cover at All
Damon self-employed as an IT contractor, had no sick leave and only four weeks of living costs in reserve. A 3-month waiting period on the policy quote would have left an $11,500 cash gap before benefits started. He chose a 1-month waiting period at higher premium, and separately built a two-month cash buffer specifically for income interruptions. The combination meant both the immediate and the extended scenarios were funded — and the premium, paid personally, was tax-deductible, reducing its real cost by about a third at his marginal rate.
The Nguyens Discovered Their Cover Paid 12 Months Only
The Nguyens' combined cover looked complete until they checked the benefit period: two years, while the medical literature and their adviser's guidance suggested five for their ages and family position. Running this tool with a five-year period showed their total uncovered exposure was $144,000 — a number they had not thought about because the monthly shortfall seemed small. They upgraded the benefit period on both policies. The premium increase was modest compared with the exposure it closed, and the peace of mind of knowing the full-period number proved worth far more than the cost.
Glossary of Terms
- Waiting Period
- The time after a valid claim begins before an income protection policy starts paying. It must be bridged by sick leave and savings. Longer waiting periods reduce premium substantially because you are self-insuring those early months.
- Benefit Period
- How long a policy will pay out once the waiting period has passed — commonly 2 years, 5 years or to age 65 in Australian products. A short benefit period is one of the most common under-covering mistakes in personal policies.
- Usable Benefit (75% Cap)
- The actual monthly amount an Australian income protection policy will pay, limited to 75 per cent of the insured's pre-disability earnings regardless of the face amount stated in the policy. Any cover quoted above the 75 per cent figure overstates what would actually be received.
Frequently Asked Questions
Everything you need to know about this topic.
Ivy Sinclair-Wren
Financial Chaos Analyst
Ivy Sinclair-Wren is a Financial Chaos Analyst covering investing, AI, wealth psychology, and the emotional consequences of opening finance apps during market crashes. Based in Melbourne, she specializes in demystifying the Australian tax code and helping users navigate the intersection of spreadsheet logic and human irrationality.