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The Difference Between Life Insurance And Income Protection

Numerous insurance products exist in the market and it can be difficult to determine which policies you should examine. One possible point of confusion is the distinction between income protection and life insurance.

While both might be significant depending on your situation, it’s important you identify the differences. Fortunately, this guide will help you shed some light on the products.

What is Life Insurance?

Most people comprehend the important benefits of investing in this financial product and while no one likes thinking about what will happen when he or she is no longer around, ensuring that your loved ones are cared for gives you a peace of mind.

Life insurance is the amount paid to your nominated beneficiaries in the event of your demise or diagnosis of a terminal disease, depending on the policy. With this product, the beneficiary typically receives a lump sum amount or the death benefit.

The payouts from life insurance usually cater for costs such as mortgage, funeral costs, subsidizing a lost income, and ensuring that families don’t experience financial strain thereafter.

While numerous people think the product is too complex and too costly, it doesn’t have to be. The flexible and powerful tool offers protection to your loved ones and can be the difference between maintaining a family home, business, and pursuing higher education.

Bear in mind that these policies may provide various features and options that expand the ways you can use them, making them a more powerful and flexible financial resource.

What is Income Protection?

This form of insurance aims to offer financial protection if you can’t work for a period due to injury or illness. In this case, you’ll receive regular income until you retire or return to paid work.

It’s important to note that the amount of income you can claim won’t substitute the precise amount you were earning before you stopped working. Instead, you can expect to obtain approximately ½ – 2/3 of your salary before tax from your ordinary job.


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This is because some money will go toward state benefits and the revenue you obtain is tax-free. You cannot claim income protection payments immediately if you become disabled or ill. Typically, you must wait four weeks minimum though payments can begin up to two years after you discontinue work.

Some of these policies provide coverage only if you sustain severe disability and aren’t able to perform any paid work. This kind of policy offers little protection and you would need to exhibit permanent and severe disability before claiming any benefit.

On the other hand, some policies may pay out for permanent total disability, so ensure you know the kind of policy you’re getting.

Differences between Life and Income Protection Insurance

Income protection pays out in the event that you’re incapable of maintaining employment because of a long-term illness or serious injury. On the other hand, life insurance pays out in the event of your demise.

Another difference is that life insurance compensates your loved ones while in income protection, the policyholder benefits directly.

Another factor that distinguishes the two products is the timing and way in which they compensate benefactors.

Income protection aims to make several consecutive payments, allowing the policyholder to receive a proportion of his or her regular employment revenue until he or she reaches retirement age. Conversely, life insurance is a one-off lump sum.

Why You Need Life Insurance

Besides the death benefit, this product offers various advantages that can protect and expand your financial security. They include:

Asset Protection

This financial product can provide a financial fallback when necessary and offset the effect of estate taxes upon your demise. The death benefit can also offer surviving loved ones the funds they require to live comfortably.

Protected Insurability

You’ll obtain permanent coverage as long as you pay the premiums even if personal or health situations change.

Why You Need Income Protection

Focus on Recuperation and Recovery

The product helps ensure your revenue doesn’t cease during trying times, allowing you to focus on your recuperation.

Ongoing life quality

If you suffer a serious injury or illness, you’ll have financial protection that will sustain you until you resume work.

Final Thoughts

Deciding on the best financial product is a family and personal decision. Nevertheless, you can consult a financial advisor who will help you with the decision.

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