If you have a family or someone who depends on you, life insurers can pay them a lump sum when you die. But if you work and rely on your income to pay the bills, you also need to think about income protection insurance, which can pay you a monthly benefit if you get sick or are injured.
Here's what both do in a nutshell:
To give you a better idea of how they differ, here's a breakdown of the main differences between life insurance and income protection.
| Life insurance | Income protection | |
|---|---|---|
| How do they pay you? | In one lump sum | In monthly instalments, similar to your income |
| When does it pay out? | If you die or become terminally ill | If you become sick or injured and aren't fit to work |
| How much does it pay out? | You choose the amount when you purchase a policy | 75% of your monthly income |
| What can it pay for? | Debts, mortgage payments, living expenses for your family and more | Everyday expenses and bills, similar to your income |
| What's the cover expiry age? | You can usually hold a policy until the age of 99 | Policies can usually be held to the age of 65, but some will allow an extension of cover to age 70 |
| Is there a disability benefit? | As an additional option that provides you with a lump sum if the person becomes totally and permanently disabled | Yes, it usually comes as a built-in benefit that provides you with an ongoing benefit if you are unable to work due to total or partial disablement |
| Maximum entry age | Generally about 75 (Some insurers offer cover up to 80) | Generally about 64 |
Ideally, you could have both because life insurance and income insurance protect you for different situations. Understandably though, you might be reluctant to pay for two policies, so ask yourself this: does anyone depend on you?
If you answered YES, then you need to consider life insurance first and foremost. If you died, your family or partner would be left with a massive financial burden. Without a life insurance lump sum, they could be forced to move house, schools and significantly downgrade their current standard of living.
If you're the primary or sole earner and you pay the bills, income protection could be really helpful as well, particularly if you don't have or want to dip into your savings.
If you answered NO, then income protection is probably the better option. Most of us rely on our income to pay the bills and keep a roof over our heads. If you got sick or injured and needed to take some time off work, how could you do that? This is where income protection comes in handy.
If you work full-time, have a family or someone who depends on you and you want peace of mind, you should consider getting combined life insurance and income protection or getting two separate policies. Here's an example of what this could look like:
Daniel, a 42-year-old sales manager, was married with three children. He took out a life insurance policy and income protection policy with the following benefits:
Daniel was suddenly diagnosed with lung cancer, which forced him to stop work and receive treatment for two years. Because he had income protection, he was able to continue to pay the bills once he'd served the waiting period. This included mortgage repayments, school fees, utilities, food and other everyday expenses.
When Daniel passed away, their life insurance policy paid out the $1,000,000 benefit to his family, allowing Daniel's partner to pay off the mortgage, credit card debt and pay for other everyday living expenses.
Compare provider features in the table below and click through to get a quote. You can typically get a combined policy when you head to the provider's website.
We currently don't have that product, but here are others to consider:
How we picked theseWe currently don't have that product, but here are others to consider:
How we picked theseLife Insurance is a little complicated and a lot overwhelming. That's why we made the Finder Score, to make it easier to compare Life Insurance products against each other. Our experts analysed over 30 products and gave each one a score out of 10.
But a higher score doesn't always mean a product is better for you. Your situation is unique, so your policy choice will be too. Don't think of Finder Score as the final word, but as a good place to start your life insurance comparison.
Income protection insurance is a financial safety net if sickness or injury stops you from working. It pays out part of your usual income, so you can keep up with everyday expenses.
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Income protection can be a valuable form of cover for Australians when its features are fully understood.
Income protection costs can range from around $50 to $160+.
Income protection for sole traders provides financial support, via a monthly payment, if you’re unable to work due to illness or injury.
Does income protection provide the same thing as mortgage protection? Read on and compare.
Although income protection and personal accident cover both provide you with income replacement, there are key differences. Read on and compare.
Find out when it is possible for part-time and casual workers to take out income protection insurance.
Find out how much your income protection insurance policy will pay out in the event of a claim. Receive quotes for income protection and apply securely.
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