Find out whether income protection or personal accident insurance is more suitable for you
Although both policies are designed to replace your income, there are some key differences you should know about.
Speak to an adviser about income protection or personal accident insurance
Income Protection Insurance vs Personal Accident Insurance: How they do they compare
| Feature | Income Protection | 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 |
Comparing Income Protection and Personal Accident Insurance
The comparison is based on various factors, which are as follows:
- Nature of cover 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. However, in the case of personal accident insurance, you will only be covered for a loss of income that arises from accidental injuries and not from illnesses. Yes, you may have the option of choosing additional sickness cover with your personal accident insurance, but most such policies do not typically cover sickness or illness unless taken as an additional cover
- Guaranteed renewability of the insurance: 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. Not being able to get continued cover from the insurance provider or refusal to renew your insurance policy can put you and your loved ones at huge risk. 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. However, this is not the case with personal accident insurance policies. Since these policies are usually sold by general insurance companies, they are usually sold for specific jobs and occupations. Therefore, if you were to change your occupation, or if there is any deterioration to your health, then your insurance provider does have the option of cancelling your policy or refusing to renew it
- Payment of benefits: With personal accident insurance policies, you may have the option of availing 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. In the case of income protection insurance, you cannot get cover for 100% of your income but can take a maximum cover up to 75% of your income. However, in this type of insurance, the benefit payments can go on for years on end until such time that you reach 65 years of age. With income protection insurance, there is usually a deferral 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 deferral period
- Insurance exclusions: Even 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. Income protection insurance too may have specific exclusions, but these are generally not as many as with personal accident insurance.
The above comparison should thus help you to decide whether income protection is best suited to your needs or personal accident insurance is a more suitable choice for you.
