Income Protection vs Personal Accident Insurance

What are the key differences and which one is more suitable for you?

If you are looking for cover that helps you when an injury puts you out of work, both Income Protection and Personal Accident insurance can help.

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/conditionsReplaces part of your income in the even of accidental injury
Does it provide short term or long term cover?Long termShort 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 lengthBenefit may be paid up to the age of 65Benefit payment capped at five years
Who provides this policy?Income protection policies are provided by life insurance companiesPersonal 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

Compare income protection quotes from these direct brands

Name Product Short Description Maximum Monthly Benefit Maximum % of Income Covered Maximum Benefit Period Waiting Period
Receive up to 30% off in your premiums if you’re in good health and meet BMI qualification tests. T’s and C’s apply.
$10,000
85%
24 months
14 or 28 days
Take out a policy and get a $100 bonus gift after holding cover for 2 months. T's and C's apply. Offer ends 31 March 2019.
$10,000
85%
5 years
14, 28, 60 or 90 days
Cover up to 85% of your Income (up to $10,000 per month) if you can’t work due to sickness or injury. Cover for 1,000 job types - full-time, part-time and self-employed.

$10,000
85%
5 years
14, 28, 60, or 90 days
Cover up to 75% (to a maximum of $10,000) of your monthly income with Guardian Income Protection.
$10,000
75%
5 years
30 or 90 days
Cover up to 75% (to a maximum of $30,000) of your monthly income with NobleOak Income Protection. Plus, get your first month free. T&C's apply.
$30,000
75%
2 years or to the age of 65
30 or 90 days
Fast online application - no phone call needed. Cover up to 85% (to a maximum of $42,000) of your monthly income with Aspect Income Protection.
$42,000
85%
5 years
14, 30, 60 or 90 days

Compare up to 4 providers

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Coverage is the amount of money that you will be paid in the event of a claim. An insurance consultant can help you determine an appropriate amount. Calculator
Provides a lump sum payment if you become totally and permanently disabled and are unable to return to work.
Provides a lump sum payment if you suffer a serious medical condition. Cover can be taken out for 40-60 medical conditions depending on the policy you choose.
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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 CoverWhen does it pay out?What is the purpose?Who is it suited for?
Personal accident insuranceWhen 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 insuranceWhen 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.

Compare income protection policies

Richard Laycock

Richard is the Insurance Editor at Finder, wrangling insurance product disclosure statements for the better part of five years. His musings on insurance can be found the web including on Yahoo Finance, Travel Weekly and Dynamic Business. When he’s not helping Aussies make sense of insurance fine print, he is testing the quality of cocktails in his new found home of New York. Richard studied Media at Macquarie University and The Missouri School of Journalism and has a Tier 1 certification in General Advice for Life Insurance.

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