What Are The Differences Between Life Insurance And Income Protection Insurance In Australia?

When it comes to comparing life insurance and income protection policies in Australia, there are many finer points and details in the differences between them and one huge one. Let’s deal with that first. 


  • Income protection insurance policy — intended to replace lost earnings in case the policyholder is incapacitated and unable to work. It will pay out if the criteria are met satisfactorily and payments will be made monthly, at a maximum level of 70% of the holder’s basic earnings, or AUD 10,000, whichever is applicable.
  • Life insurance policy — Will only pay out if the holder expires or is diagnosed with a terminal illness. The payment will be a one-off lump sum, intended to provide for family members and loved ones left behind.


One is meant as a final amount to assist bereaved family members, the other as an injection of working capital to keep people on their feet when other sources dry up unexpectedly. 


Income protection insurance


When we look at the benefits of taking out an income protection policy, there are many, including:


  • Stress reduction – Providing peace of mind and mitigating ongoing financial pressure.
  • Practical financial assistance – Allowing incapacitated policyholders to maintain their standard of lifestyle, keeping on top of household expenses or home loans.
  • Safety net – Replacing employer-funded sick leave for the self-employed.


This final point makes them especially important for self-employed Australians to consider, as they are not eligible for the same employer-funded sickness benefits should they find themselves unable to work. For a hard-working, self-employed contractor in Coogee Bay, having the safety net of an income protection insurance policy can be a great weight off the mind, allowing them to focus on their business without fear of lost earnings should an accident happen.


Life insurance


The value of life insurance is something that can only be determined individually. Those working in high-stress or physically demanding occupations may feel it prudent to invest in life insurance. There are also certain occupations with more inherent hazards and risks attached and people in those sectors may also feel the need to protect their families should the worst-case scenario come to pass. A life insurance policy enables the bereaved family to stay financially independent and not make any immediate compromises to their lifestyle.


Do I need income protection insurance and life insurance?


Australians can take out multiple insurance policies if they so wish but it is always wise to research carefully and ensure no significant overlap. In the case of a life insurance policy being payable, the unfortunate truth is you have already expired or are not going to be around much longer. Your loved ones will benefit via a lump sum in this case, whereas you also experience the benefit of income protection insurance if you find yourself needing to claim.




Both life insurance and income protection insurance are excellent forms of financial protection in modern Australia, and neither is a bad choice. The final decision rests with the individuals involved and their own unique set of circumstances.


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