Lifestyle Protection Insurance

What is lifestyle insurance?

Lifestyle insurance is designed to provide financial assistance when things don't go to plan. Life style insurance can provide:

  • Income protection. A regular monthly benefit or a lump sum payment is provided should you be unable to work as a result of an accidental injury, illness or involuntary unemployment.
  • Life benefits. You may also be covered if you pass away, in which a lump sum benefit amount is payable to your beneficiaries.

Does lifestyle cover come in the form of life insurance or general insurance?

Depending on the benefits that are available with the policy, a lifestyle insurance plan may be offered as a general insurance or life insurance product. For instance, general insurers will be able to provide you with redundancy cover.

finder.com.au is partnering with a team of consultants to handle its enquiry referrals and they do not currently provide income protection policies that offer cover for redundancy.
You may still like to receive a quote for income protection insurance without redundancy cover.

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What are the key features of a lifestyle insurance plan?

Some of the features and benefits that you can obtain with lifestyle insurance may include:

  • Accidental injury and illness cover: A lump sum or monthly benefit amount is payable in the event that you suffer from an illness or injury. Some insurance providers may only cover a specified illness or injury as listed in your policy.
  • Involuntary unemployment benefit: You will receive monthly benefit payments should you become unemployed. You may be required to have held the policy for a specified period of time to be eligible for this cover. Term and conditions will also apply with this benefit and will vary between providers.
  • Death benefit: Some policies may offer death cover, providing a lump sum benefit payment to your financial dependents.
  • Premium waiver: Your premium payments may be waived while you are on claim.
  • Automatic annual renewal: You may be eligible for an automatic renewal of your policy on an annual basis. Note that this feature may not be available with some providers.
  • Cooling off period: If you change your mind and the policy no longer suits your needs, you can cancel the policy within a specified period of time and any premiums paid will be fully refundable.

Lifestyle insurance policies often vary between insurance providers, so it is important to read the Product Disclosure Statement (PDS) closely to understand what you are and are not covered for.

Is lifestyle insurance tax-deductible?

The tax treatment of lifestyle insurance may vary depending on whether the benefit is received as:

  1. A lump sum
  2. An income stream

What happens if the cover pays an income stream?

Lifestyle insurance premiums are considered as assessable and thus, tax-deductible. Any income stream you receive is taxed.

What happens if I the cover pay a lump sum?

When received as a lump sum, lifestyle insurance benefit payments are not tax-deductible, but they are tax free.

As previously mentioned, lifestyle protection insurance is often structured differently and offers benefits that vary between insurance providers. The same applies to the tax treatment of lifestyle insurance. It is essential to consult with an experienced tax agent for more information on the taxation of your lifestyle insurance policy.


How is lifestyle protection insurance different to traditional life insurance policies?

Some of the differences that you may find between lifestyle insurance and income protection are:

Differences
Lifestyle Insurance
Income Protection Insurance
Future insurabilityMay be on cancellable basis when offered by general insurerRenewable, provided that the premium payments are met
Variety of policy benefits and featuresFeatures and options on offer vary widely across policies by different insurance providersA wide range of built-in benefits and additional features to choose from
Cover for pre-existing medical conditionsDoes not cover individuals with pre-existing medical conditionsProvides coverage for individuals with pre-existing conditions
Insured benefit amountLimited cover availableUp to 75% of your regular income. Also suitable for high income earners
Tax-deductibilityTax treatment varies between policiesIncome protection premiums are generally tax-deductible

Why consider income protection insurance to protect your lifestyle?

If you are looking for comprehensive cover to protect your lifestyle, consider income protection insurance. You can apply for cover of up to 75% of your gross annual income and receive monthly benefit payments in the event of an illness or injury. Some insurance providers may also offer additional cover in excess of 15%, to be used as superannuation contributions.

Income protection does not provide cover in the event of involuntary unemployment. However, some insurers will offer assistance if you have been made redundant with additional options such as premium waiver, premium freeze, and cover for your loans (when taken out with the insurer's associated financial institution).

Which lifestyle protection options are worth considering?

In addition to income protection, there are other types of cover in Australia designed to protect your lifestyle should anything happen to you and provide financial relief to your family if you pass away or are unable to work because of a serious illness or injury. These include:

  • Life Cover: provides coverage for your financial dependents should you pass away or be terminally ill, with only 12 months to live. The lump sum benefit can be used to cover any ongoing financial commitments and maintain your family's lifestyle.
  • Total and Permanent Disability (TPD) Insurance: is a type of living insurance that provides a lump sum payment if you have become totally and permanently disabled and are unlikely to return to work ever again. You can use the benefit payment to cover any medical and rehabilitation costs, home and vehicle modifications, or to cover any other necessary requirements to assist you throughout your recovery.
  • Trauma (Critical Illness) Insurance: is another type of living insurance that provides financial relief in the event that you have been diagnosed with a life-threatening medical condition. Some of the common conditions that trauma insurance cover include stroke, benign brain tumour, dementia, major organ transplant and cancer.

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