Life insurance vs. income protection insurance – key differences

Life insurance vs. income protection insurance – key differences

Forget complicated explanations and big words no one can pronounce; this article makes it easy to work out if life insurance or income protection insurance is right for you.

Clear things up with a simple comparison of the two to help find the right financial security fit for you. Here’s what you need to know when considering life insurance or income protection insurance.

Life insurance vs. income protection insurance

Which insurance is right for you? Each option covers you for different situations, so you may find you benefit from both. Here’s a simple way to understand the major differences.

Income Protection Insurance Life Insurance
Receive up to 75% of your monthly pre-tax income to a maximum of $10,000 per month for a period of time if you’re unable to work due to sickness or injury. Waiting and benefit periods will apply. Your family receives a lump sum payment in the event of your death or terminal illness diagnosis that could be up to $1.5 million depending on your age and your policy.
Find greater cover with optional extras such as homemaker insurance, children’s insurance, final expenses insurance, and rehabilitation benefits. Life insurance optional extras can include children’s insurance, serious illness insurance and total & permanent disability insurance.
Choose your benefit period and waiting period for lower premiums. Keep premiums manageable by choosing your benefit amount.
Premiums are usually tax deductible. Life insurance premiums are generally not tax deductible.
Stay covered until you’re 65. Keep your cover for life.

Why insurance?

What would happen if something unexpected were to happen to you, and you were unable to work and financially support your family?

Insurance is one way to find peace of mind when it comes to life’s uncertainties. Life insurance or income protection insurance can give you and your family a benefit in times of need that can be used to pay bills, repay the mortgage, keep the kids in school, and financially cover any other immediate expenses that crop up in your everyday.

According to the Choosi Dollar Report, of those who have experienced incidents in their lives wherein they had insurance cover but were misinsured or underinsured:

  • close to three in four (74.1%) say they have been impacted financially
  • close to three in five (57.4%) say they were emotionally burdened by the experience.

What about workers compensation?

Workers compensation is a form of insurance employers take out to cover their employees if they’re injured at work or become sick due to their work.

Unlike income protection insurance, workers compensation only pays a benefit for injuries and accidents occurred at work.

Income protection insurance; however, will cover you at home and work, making sure you have the time to focus on getting better instead of stressing about the bills should you need time off due to being sick or injured.

The number of hospitalisations in Australia due to injury has steadily increased each year over the past decade and now exceeds 460,000.

How premiums are calculated

Premiums for life insurance and income protection insurance (IP) are calculated using the following factors:

  • age
  • Health
  • smoking status
  • gender
  • benefit amount chosen
  • occupation
  • waiting period chosen (IP only)
  • benefit period chosen (IP only)
  • optional benefits chosen to include on your main policy

Started a new job? Renovating? Baby on the way? If your circumstances change, always reassess your level of cover and insurance options to make sure everything that’s important to you is protected.

Have a few minutes to spare? Download our free 5 Minute Guide to Income Protection Insurance now to learn more about this type of financial protection.

Download the eGuide now

Choosi makes it quick and easy to find the right insurance for you. Compare providers and quotes for life insurance and income protection insurance today.

Posted: 12 Sep 2018

This is general information only and does not take into account your personal objectives, financial situation or needs. You should consider the relevant PDS available on this website prior to purchasing any product. Choosi offers insurance products from a range of brands but does not compare all products available in the market.


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