Life Insurance Cover or Income Protection, which is best?
Life Insurance Cover and Income Protection insurance are both types of life insurance products, and they help to protect you in different ways and for different life situations.
The main difference between the two is:
- Life Insurance pays a lump sum in the event the cover holder dies or is diagnosed with a terminal illness.
- Income Protection pays a monthly benefit to protect the cover holder’s income for a certain period whilst they are unable to work as a result of injury or illness.
In simple terms, life insurance cover is for when you die; income protection is for when you can’t work due to illness or injury.
This means that one type is not necessarily better than the other. It really depends on your own circumstances and what you’re looking to help protect. You might find that it’s a good idea to take consider taking both types of cover.
What are some of the different types of life insurance products, and where does income protection cover fit in?
Life Insurance is often thought to be as a single product, but in fact it’s a blanket term used for a group of products.
Some different types of life insurance are:
Term Life Insurance
(also known as ‘life cover’ or ‘life insurance cover’)
Protects you for a defined level of cover – a lump sum is paid in the event of your death, and in some cases a diagnosis of a terminal illness. If you die, your family or partner may be left with a massive financial burden, living expenses, debts, funeral costs, schooling expenses and so forth. Life Insurance can help to protect your nominated beneficiaries financially if you pass away.
Life Insurance cover can be stand-alone or in some instances combined with other life insurance products as an optional extra. When combining it as an option, make sure you consider the PDS carefully as there are likely to be some differences in what is paid (for example, when trauma insurance is taken as an option together with life insurance cover, any claim paid under the trauma cover will reduce the remaining life insurance cover amount by the amount of the trauma benefit paid).
Total and Permanent Disability (TPD) Insurance
Provides you with a lump sum if you are unable to work again because of sickness or injury that causes total and permanent disability. TPD cover is available from NobleOak as an option combined with Life Insurance cover.
Trauma Insurance
Provides you with a lump sum if you suffer a serious medical condition (listed in the PDS). Available as stand-alone cover or as an option combined with Life Insurance cover.
Income Protection Insurance
Income Protection is also a type of Life Insurance.
A monthly benefit paid is paid (up to a certain percentage of your income) for a specified period, if you are unable to work due to sickness or injury. Most of us rely on our income to pay the bills and keep a roof over our head. If you get sick or injured and are unable to work for a while and as a result cannot earn income, then this is where income protection cover can step in.
Key comparison of each
(this is a summary of some key elements of the cover – always read the PDS for product terms and conditions)
| Life Insurance | TPD | Trauma Insurance | Income Protection | |
| Events covered | Pays death benefit when you die (if you are diagnosed with a terminal illness, it pays the benefit following diagnosis instead of upon death). | If you become totally and permanently disabled and unable to work again due to sickness or injury. | If you suffer one of the listed trauma events (medical conditions) as defined in the PDS. | Pays a certain percentage of your pre-tax income for your selected benefit period, whilst you’re unable to work due to illness or injury. |
| Purpose | In case you die or become terminally ill, the lump sum payment can assist in covering your debts, funeral costs, and future living expenses for your family. | In case you’re never able to work again because of sickness or injury, helping you modify your home, replace lost income and clear debts. | In case you suffer a serious listed medical condition, helping you pay your treatment costs and support your living costs. | In case you can’t work due to sickness or injury, helping you support yourself, your family and cover essential living expenses for a period. |
| Expiry age | 99 years of age. | 75 years of age. | 70 years of age. | 65 years of age. |
| Payment type | One lump sum. | One lump sum (note that because this is available as an option with life cover, payment under this cover will reduce the life cover sum insured by the amount paid; and also reduce the trauma cover amount if that is also taken as an option with the life cover). | One lump sum (note if taken as an option with life cover, payment under this cover will reduce the life cover sum insured by the amount paid; and will also reduce the TPD cover amount if that is also taken as an option with the life cover). | Monthly payments up to 70% of your monthly income (the percentage varies depending on income, and over time). |
| Premiums | Premiums are based on the level of cover selected, age, gender, smoking status, health and lifestyle.Generally not an allowable tax deduction. | Premiums are based on the level of cover selected, age, gender, smoking status, health and lifestyle.Generally not an allowable tax deduction. | Premiums are based on the level of cover selected, age, gender, smoking status, health and lifestyle.Generally not an allowable tax deduction. | Premiums are based on the age, gender, income, health, smoking status, and lifestyle (high risk).Choice of monthly benefit, waiting period and benefit period affect premium rates.Generally tax-deductible – we suggest obtaining tax advice applicable to your circumstances. |
So, do I need life insurance or income protection?
There are a number of different life insurance products, each designed for different life situations.
Life Insurance often makes sense for couples or families, but it may not be as important if you have no dependents as it pays out when you die or are terminally ill. Income Protection tends to suit those who are working whether or not they have dependants, as it provides a level of cover for a period if you lose your income due to illness or injury.
You can have Life Insurance without Income Protection, or the other way around, or both. They differ in covering and paying out in distinct life situations.
Choosing life insurance and income protection cover can be complex.
To find out more about NobleOak life insurance products or to get a quote, call a NobleOak Life Australian based insurance team member on 1300 014 494.
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