Understanding salary insurance and your take-home pay

Understanding salary insurance and your take-home pay

Salary insurance – also known as income protection insurance – is a product that replaces a portion of your income if you cannot work due to illness or injury. While the Australian Taxation Office does not publish a standard pay figure for salary insurance, you can see how it fits into your overall financial picture by looking at the 2026–27 tax rates, the Medicare levy, and the national benchmarks for minimum and average earnings.

What is salary insurance?

Salary insurance pays you a regular benefit – typically 50% to 75% of your usual income – after a waiting period. You can often arrange the premium through salary sacrifice, meaning the cost comes out of your pre-tax salary. This reduces your taxable income, which in turn lowers the amount of income tax and Medicare levy you pay. The Australian Taxation Office provides tax tables and a tax withheld calculator to help employers work out the correct withholding when you have a salary sacrifice arrangement.

How salary insurance affects your take-home pay

Your take-home pay is what lands in your bank account after income tax and the Medicare levy. The Medicare levy is 2% of your taxable income for most full-time workers. The single-person Medicare thresholds are $28,011 and $35,013 – if your taxable income is below the lower threshold you pay no levy, and between the thresholds the levy is phased in at 10 cents per dollar over $28,011. Full-time salaries above $35,013 pay the full 2%.

Using the 2026–27 resident tax rates from the Australian Taxation Office:

• 0–$18,200: Nil
• $18,201–$45,000: 15c for each $1 over $18,200
• $45,001–$135,000: $4,020 plus 30c for each $1 over $45,000
• $135,001–$190,000: $31,020 plus 37c for each $1 over $135,000
• $190,001 and over: $51,370 plus 45c for each $1 over $190,000

For example, if you earn $60,000 a year, your income tax (excluding Medicare) is $8,520. Adding the 2% Medicare levy ($1,200) gives a total deduction of $9,720, leaving a take-home of $50,280. If you salary sacrifice $2,000 for salary insurance, your taxable income drops to $58,000. Your tax becomes $7,920 plus Medicare levy of $1,160, total $9,080, and take-home rises to $48,920 – but you also have the insurance benefit. The net effect depends on your premium and tax bracket.

Benchmarks: minimum wage and average earnings

Fair Work sets the national minimum wage at $26.44 an hour and $1,004.90 a week (annualised to $52,255). The Australian Bureau of Statistics reports full-time adult ordinary time earnings at $2,083.70 per week ($108,352 per year). These benchmarks help you see where your salary sits. If you earn the minimum wage, salary insurance premiums may be less affordable, but the protection could be valuable if you have few savings.

Salary packaging and super

From 1 July 2026, the super guarantee rate is 12% on earnings up to $270,830. Salary insurance can be packaged alongside super contributions. Remember that super is not deducted from your take-home pay if your job advertisement states a salary 'plus super'. When you salary sacrifice for insurance, your employer may still pay super on your original salary, depending on the arrangement.

Using the tools

You can use the Take-home pay calculator to estimate your after-tax income with or without salary sacrifice. The Tax and Medicare guide explains the thresholds and offsets in detail. For a quick check against the minimum wage, see the Minimum wage page.

Salary insurance is a personal decision. The figures here are estimates only – not a tax assessment. Always check your specific policy and consult a professional if needed.