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Life And Income Protection Insurance
Life And Income Protection Insurance
Written by
Hannah Lovegrove
Edited by
David Rayfield
Reviewed by
Eliza RyanEasily compare life insurance quotes
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Long story short
Income protection can provide a vital safety net
Income protection covers up to 70% of your income if you can’t work due to illness or injury, helping you maintain financial stability during recovery.
Life insurance can offer peace of mind for your loved ones
Life insurance offers a lump sum payout to your beneficiaries in case of death or terminal illness, helping cover household expenses and debts.
Key factors when choosing insurance
Everyone’s circumstances are different, so it’s essential to consider your personal situation, such as your budget, financial situation, dependents and lifestyle needs when selecting the right policy.
Bundling policies for comprehensive protection
Combining life insurance and income protection in a single policy can offer the benefits of both while reducing your premium costs.
Life insurance encompasses several different types of insurance policies, including life insurance and income protection. While these two types of policies fall under the same category, they provide cover for different things. Life insurance provides a lump sum payment in the event of terminal illness or death, whereas income protection provides a regular monthly payment of up to 70% of your income if you can’t work due to sickness or injury.
So, if you’re considering taking out life insurance or you’re thinking about updating your level of cover, let’s take a closer look at how life insurance and income protection could work to protect you.
What does income protection cover?
Income protection is a type of life insurance that covers a portion of your income (usually up to 70%) if you’re unable to work due to illness or injury. Income protection acts as a substitute for your usual salary, so it’s often paid in regular monthly instalments for a set period, known as your benefit period, which starts getting paid after you have served your chosen waiting period. By maintaining your regular income and covering your living expenses, income protection allows you to focus on your recovery while you’re not working.
Most life insurance policies come with a cut-off age and an expiration age. When it comes to income protection insurance specifically, most policies have a maximum entry age of 60 and an expiration age of 65. It’s also worth noting that some income protection policies come with a maximum benefit period, which is the length of time you’ll receive your income protection payments. This is usually based on time (e.g. a benefit period of two years), or your age (e.g. up to age 65).
What does life insurance cover?
Life insurance, also known as life cover, term life insurance or death cover, is a type of insurance that pays out a lump sum to your beneficiaries when you pass away or are diagnosed with a terminal illness. Life insurance provides financial security for your dependents when you’re gone, which can be used to help cover household debts and expenses.
Like income protection, life insurance also comes with a cut-off and expiration age. The maximum entry age ranges between 54 to 75 depending on the insurer, which will often last until 99. However, there’s generally no benefit limit for life insurance cover, so long as it’s financially justified.
How do life insurance policies differ?
There are four main types of life insurance, each designed to provide financial protection for different life events.
| Type of insurance | Events covered | Payment type | Common purpose |
| Life insurance | Death and terminal illness | Lump sum | Support for dependants, mortgage, funeral expenses |
| Total and permanent disability (TPD) | Permanent loss of work income due to illness or injury | Lump sum | Replace lost income, cover medical care, pay off mortgage |
| Trauma cover | Critical illness as defined in the insurer’s PDS (e.g. cancer, stroke, heart attack) | Lump sum | Fund recovery, rehabilitation and related expenses |
| Income protection | Temporary loss of work income due to illness or injury | Regular monthly instalments | Replace income for everyday expenses (e.g. mortgage, bills) |
Because you never know what life can bring, choosing the right combination of life insurance can give you full-spectrum protection and greater peace of mind.
What should you look at when considering policies?
Are you trying to decide on life insurance, income protection or potentially both? Ultimately, choosing the right insurance cover depends on your individual needs. As we’ve touched on, different types of cover protect you for different events, and they also have varying costs.
With this in mind, there are several key factors to keep in mind when considering which policy or policies to take out and the benefit amount:
Your budget
It’s important to ensure you can afford to cover your insurance premiums.
Your financial situation
The insurance policy you settle on should provide enough cover to take care of your debts and living expenses.
Your dependents
It can often be worth considering the needs of your dependents, including future expenses, like education, housing and potentially an inheritance.
Your lifestyle needs
Be sure to factor in your occupational risks, health and lifestyle habits.
Waiting/ benefit period
Make sure the waiting and benefit period align with your personal savings and expected recovery time.
Exclusions
Be sure to familiarise yourself with any scenarios that aren’t covered by your policy.
What might holding multiple policies look like?
Stephanie, a 39-year-old IT professional, was married with two dependent children and always lived an active, healthy lifestyle.
To protect her family, Stephanie took out the following cover:
- Life insurance for $750,000.
- Trauma for $100,000.
- Income protection with a monthly benefit of $3,500.
One day, Stephanie was diagnosed with breast cancer and had to stop work for six months to undergo treatment.
During this time, her income protection benefit of $3,500 per month (after the waiting period) helped cover the mortgage, groceries and bills. Additionally, her $100,000 trauma benefit provided a lump sum, allowing her to access the best treatment available.
After months of treatment and recovery, Stephanie went into remission. With the support of her insurance policies, she returned to work and her family life with renewed health and confidence. Knowing she had a life insurance policy in place gave her peace of mind that her family would be financially secure, no matter what the future held.
* This is an example only to illustrate the potential benefit of taking out life insurance and should not be relied upon as indicative of benefits payable.
Helpful tip:
If you’re tossing between a life insurance policy or income protection, you might want to consider a bundled insurance policy that combines life insurance and income protection. That way, you can take advantages of the benefits offered by both types of insurance while only paying a single premium for your insurance bundle.
Eliza Ryan
Senior Marketing and Growth Channels Manager, Lifebroker
Where can you find and compare life insurance and income Protection?
If protecting your income or providing for your family is important to you, iSelect is here to help you find a suitable policy. Compare and tailor life insurance and income protection from with our trusted partner, Lifebroker.
Easily compare life insurance quotes
Save time and effort by comparing life insurance from a range of policies and providers with iSelect’s trusted partner Lifebroker
iSelect’s partnered with Lifebroker (AFS Licence number: 400209) to help you compare a range of Life Insurance policies. iSelect earns a commission from Lifebroker for each customer referred through the website or contact centre. Lifebroker do not compare all life insurers or policies in the market.
iSelect Life Pty Ltd – ABN 89 124 304 347, AFS Licence Number 331128. Any advice provided by iSelect is of a general nature and does not take into account your objectives, financial situation or needs. You need to consider the appropriateness of any information or general advice iSelect gives you, having regard to your personal situation, before acting on iSelect’s advice or purchasing any policies. You should consider iSelect’s Financial Services Guide which provides information about iSelect services and your rights as a client of iSelect.’