In essence, income protection insurance provides you with monthly, ongoing benefits for the duration outlined by your policy’s waiting and benefit periods. In contrast, life insurance pays your beneficiaries a lump sum benefit in the unfortunate event of your passing or a terminal illness diagnosis.

Lets Compare Income Protection Insurance and Life Insurance

First, let’s break down the intricacies of income protection insurance.

• It replaces a portion of your income, typically up to 70% due to an unforeseen illness or injury that restricts you from working. However, depending on your insurance policy, some may offer up top up coverage of your pre-tax income for the first couple of months of your benefit period.
• While income protection insurance provides regular payments while you recuperate, the benefit period can vary, from a couple of months to several years, or even a specified age.
• Benefit payments can be used to cover essential expenses such as rent, mortgage, utility bills, groceries, car loans, and more over the course of your recovery period.
• Considered beneficial for those managing debt payments, are self-employed, have dependents, or do not qualify for worker’s compensation benefits.
• Premiums are tax deductible at your marginal tax rate, as long as they are not paid through your superannuation.
• Most income protection policies may include rehabilitation support up to 12 times your monthly sum insured.

Now, let’s take a look at the workings of life insurance policies.

• It provides a lump-sum payment to your beneficiaries if you were to pass away or be diagnosed with a terminal illness.
• It is designed to offer financial protection to your loved ones in the event of your demise.
• The payout can be utilised for whatever purpose the beneficiary’s desire.
• It offers peace of mind to your loved ones knowing that they are financially protected if the worst were to happen.
• Policies may also include additional cover options such as Total and Permanent Disability (TPD) cover, critical illness, as well as child cover.

Here’s a table summarising the key differences:

Features	Income Protection Insurance	Life insurance
Coverage	Loss of income due to injury or illness	In the event of your death or terminal illness
Payments	Regular monthly payments	A lump sum payment to a beneficiary
Purpose	Covers ongoing lifestyle expenses whilst you’re unable to work	Provides financial security and peace of mind to your beneficiaries
Benefit Period	A specified period determined when the policy is purchased	Paid out upon death or terminal illness diagnosis
More Benefits	May include additional benefits such as death or rehabilitation benefits	May include TPD, critical illness, and child cover

Do You Need Both Income Protection and Life Insurance Policies?

Deciding whether you need either policy or both depends on your individual circumstances and the needs of your family and/or dependents. However, one thing to remember is that most if not all Australian superannuation policies offer insurance products as part of their packages – however this may not be an underwritten policy which may result in a more lengthy or difficult claim process. In any case, external Life insurance policies can be paid from your existing superannuation policy also.

Income protection can sometimes be purchased through your super fund, often at a reduced price. However, premiums paid via superannuation are not tax deductible in your personal name, unlike those for a policy purchased outright. Likewise, policies offered directly via your super fund provider may also have limitations. You should consider if you need additional coverage for yourself and your family.

Both types of insurance have different purposes and may not be valuable to you. To decide if income protection insurance is right for you, start by creating a budget of your needs and essential expenses. For life insurance, consider specific risks related to your health or career, particularly if you have a high-risk job. Determine if your beneficiaries, such as your children or spouse, could cover their living costs in the event of your death.

Most importantly, always remember to check your product disclosure statement (PDS) before investing in either a life or income protection insurance policy. If you require assistance, seek the help of an experienced broker to guide you through available options.

Access the Right Coverage with Morgan Insurance Brokers

Contemplating whether life or income protection insurance is suitable for you? Don’t know whether you require both or neither?

Consider reaching out to our team of experienced insurance brokers to help you decide on the best course of action. We’ll help you compare policies, ultimately helping you decide on the best insurance policy for your needs.

A small investment today can save you from a large loss. Contact us today.