What are the key differences and which one is more suitable for you?
Here are the differences in a nutshell:
- Income Protection Insurance. Provides you regular, ongoing payments when nearly any illness or injury prevents you from working, for as long as you can't work (up to until around retirement age).
- Accident Insurance. Pays you a single lump sum when you're injured in one of several types of common accident listed in your insurance policy, including fractures, dislocations and loss of sight.
Read on to find out how you can benefit from each of these and when it makes sense to have them both.
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Income Protection vs Personal Accident Insurance
Feature | 1. Income Protection | 2. Personal Accident Insurance |
|---|---|---|
| What type of coverage is provided? | Replaces part of your income if you're unable to perform duties of their occupation for a range of illnesses/conditions | Replaces part of your income in the even of accidental injury |
| Does it provide short term or long term cover? | Long term | Short to medium term |
| Can it be cancelled by the insurer? | Policy cannot be cancelled by life insurance company. Policies are guaranteed renewable (cannot be cancelled and premiums cannot be increased) | Policy can be cancelled or renewal declined if there are changes to policyholders health or occupation |
| Maximum benefit length | Benefit may be paid up to the age of 65 | Benefit payment capped at five years |
| Who provides this policy? | Income protection policies are provided by life insurance companies | Personal accident insurance is usually issued by general insurance companies |
| Are you paid out a predetermined value or is it based on what you earn? | Benefit payment may be indemnity (based on income from previous 12 months) or agreed value (determined at time of application) | Benefit generally always indemnity |
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What type of benefits are provided?
- Income protection insurance protects you from a loss of income that could arise from serious injuries following an accident, or if you contract a serious illness and cannot continue to work because of your illness.
- Personal accident insurance, you will only be covered for a loss of income that arises from accidental injuries and not from illnesses. You may the option of choosing additional sickness cover with your personal accident insurance.
Will cover remain even if my circumstances change?
One of the most important features of any type of insurance is that it should be renewable. What this means is that the insurance provider should continue to provide you with the required level of cover even if your situation changes after the policy has been in effect for some time.
Income protection
As far as income protection insurance goes, these policies are typically guaranteed renewable, which means that you will continue to be covered even if your health situation changes or you change occupations. These policies are generally provided by life insurance companies and they cannot cancel your policy as long as you are paying the required premiums.
Personal accident insurance
This isn't always the case with personal accident insurance policies. As some of these policies sold by general insurance companies, they are tailored to for specific jobs and occupations. Therefore, if you were to change your occupation, or if there is any deterioration to your health, your insurance provider may have the option of cancelling your policy or refusing to renew it
What is the difference between personal accident insurance and life insurance?
Both personal accident insurance and life insurance provide a lump sum payout when the conditions of the policy are triggered, but that's about where the similarities end.
Here's a breakdown of the important differences:
| Type of Cover | When does it pay out? | What is the purpose? | Who is it suited for? |
|---|---|---|---|
| Personal accident insurance | When you're injured in an accident. | To help you and your family pay for immediate medical care and bills while you recover. | People who want the means to recover quickly after an accident so they can get back to working and leading a healthy lifestyle. |
| Life insurance | When you die or are diagnosed with a terminal illness. | To help your loved ones make up for the loss of your income and to pay for immediate expenses like your end-of-life care, funeral expenses and bills. | People who have a family or are starting one and want to make sure their family can handle major expenses like mortgage payments. |
Payment of benefits
Income protection
In the case of income protection insurance, you'll typically receive maximum cover up to 75% of your income. However, this type of payment is a recurring payment that can go on for years on end until such time that you reach 65 years of age.
Waiting periods
Note: With income protection insurance, there is usually a waiting period before the benefit payments kick in. This period could be a minimum of 14 days and could go up depending on the policy that you have chosen. In the case of personal accident insurance, you can opt for the benefit payments to begin from the first day of your accident without any waiting period.
Personal accident insurance
With personal accident insurance policies, you may have the option of cover for 100% of your income. Therefore, if you were to lose your income earning ability to an accident, you would stand to receive benefit payments equal to 100% of your income. However, such payments are generally restricted to a few years, five being the maximum with most insurance providers.
Exclusions
Income protection
Income protection insurance has specific exclusions, but these are generally not as many as with personal accident insurance.
Personal accident
If you have sickness and illness cover with your personal accident insurance policy, you may find that certain illnesses such as HIV, AIDS, and mental illnesses are typically excluded from cover. This means that if you lose your income earning ability due to such illnesses, you will not receive any benefit payments in spite of having personal accident insurance in place.
