Life insurance vs Income Protection: What do I need?

Life insurance vs income protection insurance

If protecting your income is important to you, you probably need income insurance. If you have a family, consider life insurance as well.

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Both life insurance and income protection protect you in different ways, so what you need will depend on your circumstances.

If you have a family or someone who depends on you, life insurance 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.

Main differences between life insurance and income protection

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 insuranceIncome protection
How do they pay you?In one lump sumIn monthly instalments, similar to your income
When does it pay out?If you die or become terminally illIf 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 policy75% of your monthly income
What can it pay for?Debts, mortgage payments, living expenses for your family and moreEveryday expenses and bills, similar to your income
What's the cover expiry age?You can usually hold a policy until the age of 99Policies 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 disabledYes, 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 ageGenerally about 75 (Some insurers offer cover up to 80)Generally about 64

Which one do I need?

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.

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Should I get life insurance and income protection combined?

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:

  • A life insurance benefit of $1,000,000
  • An income monthly benefit of $4,000.

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 income protection or life insurance from these brands

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.

Name Product Maximum Cover Maximum Entry Age Fully Underwritten? Terminal Illness Benefit Optional Extras
NobleOak Life Insurance
$15,000,000
69
$3,000,000
TPD cover, Trauma cover
⭐Finder Exclusive: Get a 10% discount on your first 12 months with NobleOak Life Insurance. Offer ends 30 April 2021. T&Cs apply.
AAMI Life Insurance
$1,500,000
65
$1,500,000
Trauma cover
Get 5% off for existing customers and get the 12th month free if you pay annually.
ahm Life Insurance
$1,500,000
65
$1,500,000
TPD cover, Trauma cover
ahm Health members can save 10% off premiums.
Real Family Life Cover
$1,000,000
64
$1,000,000
TPD cover, Trauma cover
Get a refund of 10% of the premiums you've paid (in the first 12 months) with The Real Reward™ .
Zurich Ezicover Life Insurance
$1,500,000
69
$1,500,000
No optional
Get the first month free and a 10% discount if you take out a second life insurance policy (discount applies to second policy). T&C’s apply.
Guardian Life Insurance
$1,500,000
64
$1,500,000
TPD cover, Trauma cover
Cover up to $1.5 million with Guardian Life Insurance.
Suncorp Life Protect Insurance
$1,500,000
65
$1,500,000
Trauma cover
Sign up and become a member of Suncorp Benefits. Access savings of up to 15% from major retailers. Existing members can get a 5% discount off their policy.
Insuranceline Life Cover
$1,500,000
65
$1,500,000
Trauma cover
Get a $100 bonus gift after 2 months. Offer ends 30 September 2021. Plus get 12 months cover for the price of 11 if you pay for life insurance annually. T&Cs apply.
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Compare up to 4 providers

Name Product Maximum Monthly Benefit Maximum % of Income Covered Maximum Benefit Period Waiting Period Options
AAMI Income Protection
$10,000
75%
Up to
5 years
14, 28, 60 or 90 days
AAMI customers save 5% on income protection.
Insuranceline Income Protection
$10,000
75%
Up to
5 years
14, 28, 60 or 90 days
Get a $100 bonus gift after 2 months. Plus, and get 12 months cover for the price of 11 if you pay annually. T&Cs apply.
NobleOak Income Protection
$25,000
75%
Up to 65
30 or 90 days
Get your first month free when you buy NobleOak Income Protection policy. Offer ends 30 April 2021. T&C's apply.
Suncorp Income Protection
$10,000
75%
Up to
5 years
14, 28, 60 or 90 days
Sign up and become a member of Suncorp Benefits. Access savings of up to 15% from major retailers. Existing members can get a 5% discount off their policy.
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