How is income protection cover usually paid out and how much will it usually be?

• A. It is usually paid out as an income and will typically be between 50% to 75% of pre-tax earnings and is tax-exempt
• B. It is usually paid out as a lump sum equal to 80% of earnings and taxed
• C. It is usually paid out as an income and will typically be between 20% to 40% of post-tax earnings and is taxable
• D. It is usually paid out as a lump sum equal to 60% of earnings and is tax-exempt

Answer: (A)

Income protection is designed to replace part of your income if you’re unable to work due to illness or injury. It pays as a regular income, typically monthly, rather than a one-off lump sum. The benefit is usually a portion of your gross earnings, commonly around 50% to 75%. Because this payment is intended to replace lost income, it is generally tax-exempt.

Other descriptions would imply a lump-sum payout or different tax treatment that isn’t how income protection is typically structured, so they don’t fit as well.