Life Insurance and Income Protection Insurance: What Cover Do I Need?

Find out how life insurance and income protection are different and what is suitable for your situation

Life Insurance and Income Protection are both extremely important types of cover that are designed to give protection for different needs. While the primary purpose of life insurance is to provide support in the form of a lump sum payment following death or terminal illness, income protection provides on ongoing benefit payment to assist injured or ill workers while they are unable to work.

Can I get combined cover?

It is not unusual for people to have both of these types of cover in place; in fact, most insurance advisers would recommend it.

Receive a quote for life insurance, income protection or combined cover

Life Insurance vs Income Protection: The key differences

FeatureLife InsuranceIncome Protection
PurposeBenefit to clear all debts and provide ongoing support e.g. living expenses to financial dependents following the policy owner's death.Benefit to cover debts and ongoing living expenses while the insured is forced to take time out of work. Can include extra benefit to cover business expenses and rehabilitation.
BenefitPaid as a lump sum upon death or diagnosis of terminal illness of policy owner. Applicant determines benefit at the time of application.Paid as an ongoing benefit usually monthly in arrears. Benefit is generally 75% of the insured persons regular income though some policies will offer up to 85% if the additional portion is contributed to superannuation.
Death CoverLump sum provided usually to a maximum of about $1.5 million though some providers will offer unlimited benefit.Most income protection policies will provide a benefit for death. This is usually 3 - 4 times the insured monthly benefit.
Disability BenefitAvailable as an additional option. Provides a lump sum if the person becomes totally and permanently disabled.Provided as a built-in benefit. Insured given an ongoing benefit if they are unable to work due to total or partial disablement. Different definitions of TPD will apply.
Maximum Entry AgeGenerally about 75 (Some insurers offer cover up to 80).Generally about 64.
Cover Expiry AgePolicy can usually be held until the age of 99Policy can usually be held till age 65. Some policies will allow an extension of cover to age 70.
Tax treatmentLife InsuranceIncome Protection
Inside SuperannuationPremiums are generally tax-deductible. Benefit payments may be subject to tax as high as 16% if paid to non-dependent.Premiums are generally not tax deductible. Benefit payment is not recognised as assessable income.
Outside SuperannuationPremiums are generally not tax deductible and benefit payments are not assessable.Premiums are tax deductible but benefit payments are not assessable.

Is it still worth considering Income Protection if I have Life insurance?

Both life insurance and income protection have been designed for different reasons. One of the primary purposes of life insurance is to provide cover for the policyholder’s family and financial dependents after they have passed away.

Income protection provides additional cover as you live

Income protection essentially being what is known as “living insurance”, providing support to the policy owner and their beneficiaries while they are still alive. It's also valuable for people with no financial dependents that still want to maintain their current standard of living if they are unable to work. Income cover can be a necessary consideration for anyone engaged in full-time work.

Common questions people have when considering Life Insurance and Income Protection in Australia


Combining income protection and life insurance provide you with a joint policy discount

Most Australian Life Insurance companies will offer multi-plan discounts if the policy owner is insured under a number of policies and the discount is usually applied to the premium and excludes stamp duty or policy fees that are applicable. Most insurers will require the policy owner to be paying a certain amount in premium payments each year.

Example AIA

AIA will apply a 12.5% discount for life cover policies if the policy owner has income protection insurance in place and is paying at least $700 or more per year in premium payments for both cover types.

Compare income protection and life insurance

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Compare cover from these direct brands

Rates last updated December 14th, 2017
Name Product Maximum cover Maximum Entry Age Minimum Sum Insured Guaranteed Future Insurability Expiry Age Short Description
$15,000,000
69
$0
Yes
99
Get a quote for up to $15 million in life insurance cover. Cover can be tailored to meet your personal needs.
$1,500,000
65
$3,000
No
80
Choice of cover options and flexible premiums to suit budget. No lock-in contracts and fast application.
$1,500,000
65
$100,000
Yes
99
Receive a discount of 10% on life insurance as a Woolworths Rewards Member. T's and C's apply.
$2,000,000
59
$50,000
Yes
99
Get flexible life insurance up to the sum of $2,000,000.
$1,000,000
64
$100,000
No
Get a refund of 10% of the premiums you've paid (in the first 12 months) with The Real Reward™ .
$1,500,000
69
$0
Yes
99
A simple life insurance product that can offer up to $1,500,000 in a lump sum payment on death or diagnosis of terminal illness.

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Rates last updated December 14th, 2017
Name Product Short Description Maximum Monthly Benefit Maximum % of Income Covered Maximum Benefit Period Waiting Period
Cover up to 75% (to a maximum of $25,000) of your monthly income with NobleOak Income Protection. Benefit period can be tailored to suit your needs.
$25,000
75%
2 years or to the age of 65
30 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 over 1,000 jobs and full-time, part-time and self-employed.
$10,000
85%
5 years
14, 28, 60, or 90 days
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
75%
5 years
30 or 90 days
Cover up to 75% of your monthly income if you can’t work due to illness or injury, up to a maximum of $10,000 a month. Take out cover today and you could get a bonus $100 Gift Card.
$10,000
75%
5 years
30 or 90 days

Compare up to 4 providers

William Eve

Will is a personal finance writer for finder.com.au specialising in content on insurance. While he cannot give personal advice to clients, Will enjoys explaining the intricacies of different types of protective cover to help individuals and businesses find affordable cover that won't leave them underinsured.

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