Income Protection Insurance vs Mortgage Protection

Unsure if Mortgage Protection or Income Protection is more suitable for you? Find out how they are different.

Illness, injury and death are not often at the forefront of our minds. Unfortunately, these are also the things that can affect our lives the most. If you or your partner were injured or sick, or worse, could you manage without steady income for an extended period of time? Two types of cover available in Australia to give financial protection against this event are income protection and mortgage protection.

  • Income Protection Insurance: Can be purchased via life insurance companies and general insurance companies in Australia and provides an ongoing monthly benefit to replace your income if you are unable to work following serious illness or injury. The benefit payment can be used to cover a range of expenses including mortgage repayments, bills, education costs, rehabilitation expenses and any other costs you may face while unable to work.
  • Mortgage Protection Insurance: Is generally taken out with the same institution providing your home loan and can provide a benefit payment to cover your mortgage repayments in the event of your death, serious illness or injury or if you are made redundant. This payment is either provided as a lump sum or as an ongoing benefit payment. Mortgage protection insurance is only offered by a small number of lenders in Australia.
Key DifferencesMortgage Protection InsuranceIncome Protection Insurance
Benefit PaymentProvides a lump-sum or ongoing benefit payment to cover your mortgage repayments if you pass away or suffer an injury/illnessProvides an ongoing benefit payment of up to 75% of your income if you are unable to work following serious illness or injury
Flexibility OptionsLess flexible and only offers limited additional featuresAllows you to choose your level of salary cover (usually up to 75%) and the waiting period for your cover
Basis for ClaimsYou can claim in the event of injury, accident, death or redundancyDifferent definitions in place for when worker is eligible to claim. They generally must not be able to perform the regular duties of their occupation
Application ProcessFast application with no medical or blood tests requiredWhether cover is available and the premium you pay will be based on a number of factors including age, gender, smoking status, occupation, hobbies and pastimes

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Receive income protection quotes from these direct brands and apply

Product details Maximum cover Maximum Entry Age Cooling-off
(days)
Income Protection
Income Protection
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 over 1,000 jobs and full-time, part-time and self-employed. $10,000 60 30 Get quoteMore info
NobleOak Income Protection
NobleOak Income Protection
Receive up to 75% of your income each month to a maximum of $25,000 if you can't work due to serious illness or injury. $25,000 59 30 Get quoteMore info
Income Protection
Income Protection
Receive up to 75% of you income (up to $10,000 per month) of your income if you're unable to work due to serious illness or injury. $10,000 59 21 Get quoteMore info
Ezicover Income Protection
Ezicover Income Protection
Cover up to $12,000 income replacement when unable to work in any occupation due to sickness or injury. First month of cover is free. $12,000 60 30 Get quoteMore info
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What is usually covered by Income Protection and Mortgage Protection?

Income Protection

Standard built-in benefits

  • Choice of agreed or indemnity value: Income protection gives you a choice between agreed value or indemnity protection. Agreed value guarantees your salary benefits at the time of your application, safeguarding against changes in your salary. Indemnity protection requires you to prove your salary if you make a claim. Agreed value benefits are up to 20% higher but are important for people with flexible incomes such as freelancers or small business owners.
  • Death benefit: This benefit covers you in the event of death or terminal illness.
  • Total and partial disability benefits: Most insurers include disability benefits in all income protection plans, but these differ between total and partial disability benefits. The definitions of total and partial disability differs between providers, but total disability generally stops you from working due to an illness or accident, whereas partial disability means you are able to work part time or in another occupation.
  • Stepped or level premiums: You have a choice between stepped or level premiums. Level premiums remain the same throughout the life of your policy, whereas stepped premiums start off lower and increase with age.

Additional features at an extra cost

These options differ between insurance providers, but some of the main additional options for life insurance cover include:

  • Superannuation contribution: Contributions to your super are continued while your are receiving an income benefit.
  • Involuntary unemployment: Income protection does not offer a payout for redundancy, but some providers offer features such as loan repayment cover or premium waivers.
  • Rehabilitation benefit: Your insurance provider will cover the cost incurred from rehabilitation that can help you if you become completely disabled
  • Accommodation, overseas or domestic transport: This option safeguards you if you become disabled while away from home.
  • Family support: This benefit in the event if you are totally disabled and an immediate family member must stop work to look after you.
  • Return to work bonus: Some insurers offer this benefit when you return to work after being injured.

Mortgage Protection

Standard built-in benefits

  • Death Cover: This benefit covers you in the event of death or terminal illness. Any difference between sum-insured and amount owing on mortgage can be paid to your estate.
  • Disability benefits: You will receive a monthly benefit payment to cover your mortgage repayments in the event of an illness or injury and you are unable to work.
  • Involuntary unemployment: Mortgage protection insurance will provide cover in the event of redundancy generally up to three months.
  • Complimentary accidental death cover: Complimentary cover for accidental death while loan provider is setting up home loan. This is usually provided for up to 2 months.

Important points to know regarding your Mortgage Protection policy

  • You will not be covered for any claims related to a an injury or illness that you received medical consultation for in the months before you purchased the policy
  • Involuntary unemployment cover is not available if you are employed in a permanent part time, casual, contract or temporary capacity for less that 20 hours per week or if you are a sole trader working less than 20 hours per week
  • Cover may only be available up to a maximum loan value

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Richard Laycock

Richard is the senior insurance writer at finder.com.au and is on a mission to make insurance easier to understand.

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2 Responses to Income Protection Insurance vs Mortgage Protection

  1. Default Gravatar
    Kevin | October 13, 2016

    I’m am 67 my wife is 60 yrs old is that too old to get income protection to cover our housing loan we r both working still

    • Staff
      Maurice | October 14, 2016

      Hi Kevin,

      Unfortunately the maximum entry age for income protection in Australia is 64 years old. You may find this page helpful.

      Note: Income protection insurance does not cover redundancy.

      I hope this helps,

      Maurice

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