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What is term life insurance?

What is income protection?

What does life insurance cover?

What does income protection cover?

How are term life insurance and income protection insurance different?

What should I look at when considering life insurance and income protection policies?

What might holding multiple types of life insurance policies look like?

Where can I find and compare life insurance and income protection?

Long story short

Life cover is for if you pass away or become terminally ill

It pays a lump sum to your loved ones to help with funeral expenses but also daily living costs, looking after your family when you can’t.

Income protection is for if you can’t work for a time

It pays up to 70% of your income regularly so you can stay on top of bills as you rest and recover.

Consider your circumstances and needs

Think about your financial situation, lifestyle, job and dependents to better understand what you might want from a policy.

What is term life insurance?

Term life insurance, sometimes shortened to life insurance or life cover, pays a lump sum to your nominated beneficiaries or your estate if you pass away to help them manage household debts and expenses, and maintain their lifestyle. Some policies also pay out the benefit amount (or a portion of it) if you’re diagnosed with a terminal illness. In either instance, these funds can be a way to look after your family when you’re no longer able to be there with them.

The cut-off ages for taking out a life insurance policy tend to range from 54 to 75 years of age, depending on the insurer, while the policy tends to expire after you reach a certain age, like 99, or earlier, depending on your policy.

As to term life insurance benefit amounts; often people choose a nominated lump sum amount to fit with their circumstances, like resembling the lost income to their family if they were to pass away suddenly. While no amount of money can replace you, the benefit amount can give your family the time and space to grieve without unnecessary added stress. That’s why it’s important to think about.

What is income protection?

Income protection provides a regular monthly payment, usually up to 70% of your regular gross (pre-tax) income, if you can’t work temporarily due to sickness or injury. This injury or illness doesn’t have to have occurred at work (unlike in workers’ compensation schemes), but it needs to prevent you from doing your regular duties. You can still potentially be covered if your capacity is reduced, like only being able to work a certain number of hours, rather than being completely unable to work.

The cut-off age to take out income protection tends to be around your 60th birthday – when you may already be starting to think about retirement – with many policies offering a payout or benefit period up to your 65th birthday. However, you can choose a shorter benefit period, like 2 years.

Similarly, you can customise your income protection policy by picking different waiting periods – this is how long you’ll need to be unable to work before you start receiving payments, and it could range from around 14 days to 2 years. You’ll then receive regular income protection payments for the benefit period or as long as you’re unable to work (whichever is shortest).

How are term life insurance and income protection insurance different?

Put simply, term life insurance pays a lump sum benefit if you pass away or are diagnosed with a terminal illness, while income protection insurance cover is a regular payment for a set time if you’re unable to work because of an injury or illness.

Here are some other differences between the two types of life insurance.

There are also other kinds of insurance products, which are different again. For instance, trauma or critical illness insurance offers a lump sum payment if you’re diagnosed with a certain condition, giving you a financial safety net if you wish to take time off work to recover or have additional means to pay medical bills. Meanwhile, total and permanent disability (TPD) insurance is a lump sum payment if you’re totally and permanently disabled and unable to work again. A TPD benefit can be used to support yourself as well as modify your home and lifestyle appropriately.

What should I look at when considering life insurance and income protection policies?

When considering and comparing term life insurance and income protection policies, it can be helpful to think about your budget and financial situation, your lifestyle and living situation, and how you value different policy features.

To help understand the kind of life insurance or income protection cover you’d like, you could start by considering unique factors about your personal circumstances, like:

• your budget, including what you can afford in insurance premiums over time
• your financial situation, including what you would like your chosen policy to cover, such as debts, ongoing living expenses and/or a financial safety net
• your living situation, like whether you own your home or rent, or whether you have young dependents who will need your support for years to come
• your lifestyle, including your health and hobbies
• your job, including whether you’re self-employed and whether you have any occupational risks and your ability to reskill in a similar career.

With a clearer picture of yourself and your needs, you could then start comparing policies by their features, like:

• cover amount, such as a lump sum for term life insurance or a monthly percentage of your income for income protection
• variable or variable age-stepped insurance premiums
• applicable waiting periods
• applicable benefit periods
• exclusions, including your eligibility for certain types of cover and whether you’d need to have medical tests
• whether you want a policy within your super or to hold one outside of it.

Helpful tip

If you can’t choose between term life insurance and income protection cover, you don’t have to. There are no rules against having both kinds of protection. You might also want to consider other kinds of life insurance.

It can help to think about what combination of policies could give you the peace of mind that if something unexpected were to happen, you and your family would be looked after. For some people, holding more than one type of policy may provide broader coverage, though this will depend on individual circumstances and budget.

Adrian Bennett

General Manager for General Insurance

What might holding multiple types of life insurance policies look like?

Having multiple types of life insurance can help you cover more potential unexpected changes in your life. Depending on your circumstances, you might prefer multiple types of life insurance at once, like claiming income protection and trauma insurance at the same time.

To illustrate what this could look like in action, consider our fictional friend Stephanie: a 39-year-old IT professional who’s married with two dependent children. She’s always been active and lived a healthy lifestyle.

Stephanie might consider trauma insurance with a $100,000 benefit amount and an income protection policy with a 30-day waiting period and a monthly benefit of $3,500 for a benefit period of 2 years.

If Stephanie was to be diagnosed with breast cancer and she was needing to stop work for 6 months to undergo treatment, she would be able to claim benefits from both her trauma insurance and income protection.

For instance, receipt of the $100,000 lump sum upon diagnosis could be put towards her medical bills, including any gaps not covered by her health insurance, and to cover unexpected expenses, like flying her parents to stay and look after the kids, and regular living expenses while she waits out her 30-day income protection insurance waiting period.

Where can I find and compare life insurance and income protection?

If you’re having trouble finding and comparing term life insurance and income protection, iSelect can help, thanks to our friends at Lifebroker. If you’re concerned about how your loved ones would manage without you, you can use our online comparison tool to compare a range of term life insurance options. Alternatively, if you’d like protection in case you can’t work for a period of time, you can use our online comparison tool to look over a number of options.