Life insurance vs income protection insurance
The main difference between life insurance and income protection insurance is that life insurance pays a lump sum if you pass away, while income protection provides ongoing payments if you’re unable to work due to sickness or injury.
When deciding on insurance, it’s important to understand exactly how each policy works, what’s covered and how you could benefit from the policy and different stages in your life. Planning for the unexpected means figuring out what support you and your loved ones might need to safeguard your financial situation and lifestyle.
Ready to learn more about the key difference between life insurance and income protection insurance?
What’s the difference between life insurance and income protection insurance?
Every insurance policy comes with a unique set of features, benefits, exclusions and considerations. By understanding how each insurance policy works, you can help ensure you’re in the best position to secure the type of insurance and level of cover to suit your personal circumstances.
Below, we’ve mapped out the key differences between life insurance and income protection insurance to help you confidently understand your options.
| Real Life Insurance | Real Income Protection Insurance | |
| How is it paid out? | A lump sum payment is made to your nominated beneficiaries. | Payments are made on a monthly basis during your chosen benefit period (it can range from 6 months, 1 year, 2 years or 5 years) |
| When is it paid out? | Payment is made if you become terminally ill or pass away. | Payment is made monthly, following any waiting periods, if you’re unable to work due to an injury or sickness. |
| How much cover can you secure? | Cover can range from $100,000 to $2 million (depending on your circumstances). | Cover can include up to 70% of your pre-tax income (up to $15,000) per month, depending on your circumstances. |
| Who can apply for a policy? | Australian residents aged 18 to 74 can apply for life insurance with Real Insurance (no medical or blood tests apply). | Australian residents aged 18 to 60 who are earning an income and working at least 15 hours per week are eligible to apply for Real Income Protection Insurance. |
| What’s the waiting period? | Once your claim is approved, payment will be made promptly. Your family may be paid a 20% advance funeral payout (up to $20,000, subject to approval) while we assess the claim to cover any immediate expenses. | When applying for a Real Income Protection Insurance policy, you can choose a waiting period (how long you’ll need to wait before your income benefit payments begin) of 30 or 90 days. |
| Optional cover | With Real Life Insurance, you have the option to add on additional life cover, such as Children's Insurance, Total and Permanent Disability Insurance and Serious Illness Insurance. | N/A |
| What’s not covered | Death caused by suicide or intentional self-injury within the first 13 months of cover starting, increasing or being reinstated. Other exclusions may apply depending on the answers you provide to health and lifestyle questions. | With Real Income Protection Insurance, no income benefit will be payable if injury or sickness is the result of: - An intentional self-inflicted act - Attempted suicide - Normal pregnancy, giving birth, miscarrying or having a pregnancy terminated - War or war-like activity, or taking part in a riot or civil commotion - Engaging in any criminal activities or illegal acts |
| Does health status impact eligibility? | Real Life Insurance cover can be applied for over the phone, without going through lengthy doctor’s examinations or uncomfortable medical tests. Certain health and lifestyle factors may influence the cost of your premiums. For example, certain types of cancer can impact your eligibility (depending on the severity of your diagnosis and your treatment since diagnosis). | With Real Income Protection Insurance, cover can be applied for over the phone as well. Premiums are determined by several factors, including the duties you perform as part of your work, as well as your age, smoking status, and more. |
| Are there any tax benefits? | Generally, life insurance premiums aren’t tax-deductible. You and your beneficiaries aren’t usually required to pay tax on any benefits paid out. As always, be sure to seek personalised advice from a qualified tax professional. | Yes, according to the ATO, you may be able to claim the cost of your income protection insurance premiums against any loss of income. Learn more about how tax deductions work with income protection insurance premiums. As always, be sure to seek personalised advice from a qualified tax professional. |
Keep Reading: Want to learn more about each policy? Discover what life insurance covers as well as what’s covered by income protection insurance.
Do you need both life insurance and income protection insurance?
The answer to this question really depends on your unique personal circumstances. To help you decide whether you need life insurance, income protection insurance, or a combination of both policies, consider the following scenarios and whether these situations might apply to you and your family, both now and in the years to come.
Keep in mind that there are multiple ways to take out both life insurance and income protection insurance policies. Purchasing a policy directly from an insurer is one option, while you can also secure cover through your superannuation policy. Again, there are important pros and cons to consider before deciding which option is right for you.
Keep Reading: Income protection through super vs direct: Which option is right for you?
Case study: Life insurance only
Stephanie* is a single mother of two young children with a significant mortgage, private school fees to pay and a car loan to service. With multiple dependent family members, securing life insurance may give Stephanie peace of mind knowing her loved ones will be taken care of and financially secure even after she’s gone.
Curious about how much life insurance you might need? Try the Real Life Insurance calculator.
Case study: Income protection insurance only
Jonathan* is a construction worker in his late 20s, renting an apartment with no significant debts or liabilities to his name. If he were unable to work due to sickness or injury, income protection insurance could provide the financial safety net he needs to focus on his recovery and get back to work without added financial strain.
Keep Reading: Wondering, ‘Do I need income protection insurance?’. Here’s what you need to know.
Case study: Life insurance and income protection insurance combined
Annabelle* has three children and an elderly parent who are reliant on her source of income, as well as multiple liabilities and debts (like a mortgage and personal loans). By taking out both life insurance and income protection insurance policies, Annabelle would have cover to suit a range of possible scenarios.
Income protection insurance could cover her lost income for a period of time if she were unable to work due to sickness or injury, while life insurance could pay a lump sum if she passed away or became terminally ill.
Key considerations when deciding between life insurance and income protection insurance
Imagine being unable to work due to an illness or injury – how would you manage your ongoing financial commitments such as mortgage or car repayments, school fees, and everyday living expenses? It's also important to think about how your family would cope financially if you were to pass away or be diagnosed with a terminal illness. Would they have the necessary support to maintain stability during such a difficult time?
Choosing between life insurance and income protection insurance is all about reviewing your current lifestyle, income, debts and financial responsibilities. Consider both your current financial situation and your future needs, particularly when it comes to major milestones, such as starting a family, purchasing a home, or taking out significant personal loans.
To help you weigh up your options, ask yourself the following questions:
- What are your financial responsibilities? Consider creating a budget to understand your current household expenses, mortgage or rent payments, insurance, school fees, debts and entertainment costs. This will give you a clear view of what current financial obligations you have, and whether you’d benefit from financial assistance if you were unable to work and earn an income due to sickness or injury for a period of time.
- How would you pay for healthcare, recovery and rehabilitation costs? In the event of an unexpected injury or sickness, you may be unable to work for a period of time. Without a source of income, you’d also need to cover healthcare costs to put you on the road to recovery. Consider how you’d pay for these medical bills, especially without your current source of income.
- What is your income and employment? For many, a regular pay cheque is essential to staying on top of bills, everyday expenses and debt repayments. Consider your current allocation of paid sick days and annual leave, and what you’d do in the event of being unable to work or earn an income from your employer for an extended period of time.
- Do you have dependants? Consider who is financially reliant on you, such as young children, elderly family members or your partner. If you were to pass away or be unable to work suddenly, how would your dependents continue to pay for day-to-day expenses, mortgage repayments and cover any outstanding debts in your name?
- Is income protection insurance included in your superannuation? Even if you have income protection insurance through super, it can be helpful to review whether this level of cover is right for your needs. It may be worth considering an additional direct income protection insurance policy which can offer a higher level of cover that you can customise to your needs (such as extending your benefit period or reducing your waiting period to receive your income benefit payments sooner).
Seeking professional advice
Your personal circumstances are unique, meaning that the right level of insurance cover should be tailored to your needs, lifestyle and financial situation. By speaking with an experienced financial adviser, you can understand what your current needs and liabilities are and what to consider when comparing your insurance options.
Safeguard your financial security with life insurance and income protection insurance
Both life insurance and income protection insurance offer valuable peace of mind in case of the unexpected. Whether you’re looking to cover a portion of your income if you get sick or injured and can’t work, or seeking financial support to help take care of your loved ones after you’re gone, or a combination of both.
If you’re looking for peace of mind and financial security for you and your loved ones, Real Insurance offers award-winning products and service, such as life insurance and income protection insurance.
*Names and case study scenarios are fictional and illustrative examples only.
Last updated: April 13th 2024
15 Aug 2025
Lucinda Starr
Content writer, dog mum, Pilates lover
With over ten years of experience in digital publishing, copywriting and content marketing, Lucinda specialises in creating content for finance, property, healthcare and lifestyle brands. Previously, Lucinda has worked as a content manager and digital journalist for Concrete Playground, Broadsheet Media and Eat Drink Play.