Which Income Protection Waiting Period Suits You?

Income protection can replace part of your income if you can't work due to illness or injury, helping you keep up with your mortgage, bills, and everyday expenses. Many tradies, contractors and self-employed workers look at it because they have no sick leave to fall back on.

When it comes to selecting a policy, choosing your waiting period is one of the bigger decisions. The waiting period determines how soon your payments start once you're unable to work and your claim is accepted. Get this wrong, and you could end up paying more for cover than you need to, or waiting too long for benefits when you need them most.

In this guide, we'll walk through what a waiting period is, how it works, the factors to consider, and how to decide which option suits you, especially if you're in the trades industry.

What is a waiting period in income protection insurance?

The waiting period is the set amount of time between when you're unable to work due to illness or injury, and when your benefit payments actually start.

For example:

• If you choose a shorter waiting period and break your arm on-site, your benefit starts sooner, but the premium is usually higher.
• If you choose a longer waiting period, you go longer without payments before the benefit starts, but the premium is usually lower.

Waiting periods vary by policy; Moneysmart explains them.

Why the waiting period matters for tradies and contractors

For those working in trades, time away from the job site often means money out of your pocket. Unlike salaried employees, many tradies and contractors don't have extensive sick leave benefits or ongoing pay if they're injured.

The waiting period directly affects:

• How soon you receive financial support after an injury or illness
• Your premium costs (shorter waiting periods usually mean higher premiums)
• Your cash flow and ability to recover without stress

Choosing a waiting period for your income protection insurance that matches your savings can help you avoid struggling to pay the bills if something happens.

How waiting periods affect premiums

Insurers calculate your premium based on risk. If you choose a short waiting period, the insurer is more likely to start paying you sooner, which means they take on more risk and charge higher premiums.

• Short waiting period:
  • Higher monthly premium
  • Benefits start sooner
  • May suit you if you have no financial safety net
• Medium waiting period:
  • Mid-range premium cost
  • Requires some savings to cover the gap
• Long waiting period:
  • Lower monthly premium
  • Works if you have savings or other support

Factors to consider when choosing your waiting period

1. Your savings and emergency fund

If you have enough money saved to cover expenses for two or three months, you might choose a longer waiting period to save on premiums.

Example: A tradie with savings that would cover a few months of expenses might choose a longer waiting period, using those savings to bridge the gap.

2. Sick leave or employer benefits

If you're an employee with paid sick leave, or covered by an employer's workers compensation, that may carry you through the early weeks, so you may be able to choose a longer waiting period.

3. Your financial obligations

Mortgage, rent, school fees, and other regular expenses won't pause just because you're injured. If your bills are high and your savings low, a shorter waiting period may suit you better.

4. The nature of your work

Trades work is physically demanding, and injuries can take longer to recover from. Some trade injuries keep you off the tools for months. A shorter waiting period might be worth the higher premium.

Common mistakes people make when choosing a waiting period

1. Focusing only on price: Picking the lowest premium without considering your cash flow can leave you without income for too long.
2. Ignoring lifestyle changes: A waiting period that suited you five years ago might not fit your current circumstances.
3. Forgetting hidden costs: Medical bills, rehab, and transport costs can drain savings faster than expected.

Injury risk in trade work

Trade work carries a real risk of injury. Safe Work Australia publishes national figures on serious workers' compensation claims, including by industry, in its Key Work Health and Safety Statistics Australia report.

Without income protection insurance, an injury could mean months without pay. A waiting period and benefit level that suit your savings can help you focus on recovery instead of stressing about bills.

Final thoughts

Choosing the waiting period for your income protection insurance is about more than just premiums, it's about how you and your family would manage if you couldn't work.

Take the time to assess your savings, expenses, and risk level before locking in a policy. If you're unsure, ask a broker to talk you through the options.

Tradies365 doesn't arrange income protection or life insurance. We arrange personal accident and illness cover, which can pay a weekly benefit if an injury or illness stops you working, depending on the policy. Read personal accident vs income protection to see how the two compare.