Life Insurance and Income Protection Insurance

Life can be full of uncertainties, but that doesn’t mean we can’t prepare for them. Two great ways to protect your financial future and that of your loved ones are life insurance and income protection insurance. Each has its benefits, depending on your personal situation.

What is life insurance and income protection insurance?

Life insurance, at its core, is a way to provide for your family in the event of your passing. It offers your loved ones a financial safety net, helping them cover essential expenses like mortgage payments, bills, and funeral costs. This support can ensure they maintain their living standards and remain financially stable, even without your income.

Income protection insurance, on the other hand, focuses on you and your ability to earn a living. If an accident, illness, or injury prevents you from working, this long-term policy helps replace your income. It can cover your expenses, allowing you to concentrate on your recovery without the added stress of financial worries.

What are the different types of life insurance?

Starting this journey can feel overwhelming with so many options to choose from. But don’t worry, it can be simplified into two main types of life insurance:

Term life insurance: This is the most common type, where the policy lasts for a set period, like five, ten, or 25 years. It pays out a lump sum to your dependents if you pass away during this term, providing them with financial support when they need it most.

Whole-of-life insurance: Unlike term life, whole-of-life insurance doesn’t have an expiry date. It guarantees a payout to your loved ones whenever you pass away, ensuring they’re taken care of no matter what. Because of this lifelong cover, it’s usually more expensive, sometimes costing 10 times more than term life insurance.

How does income protection insurance work?

There may come a time when you can’t work due to illness or injury. That’s where income protection insurance comes in. By paying regular premiums, you ensure that if a serious health issue prevents you from working, you’ll receive regular payments to replace a portion of your income. 

Typically, this covers 50 to 70% of your salary, helping you manage your expenses and focus on getting your health back on track.

Who should consider life insurance and income protection insurance?

That’s a great question, and it really depends on your personal circumstances, goals, and priorities. 

You might want to consider life insurance if you have dependents who rely on your income and could face financial difficulties if something were to happen to you. This includes partners, spouses, children, or other caregivers. Life insurance can also be essential if you’re a homeowner with a mortgage, ensuring your loved ones can keep their home if you’re no longer around.

Key tip: Before taking out life insurance, it’s a good idea to check if your employer provides any 'death in service' benefits. 

On the other hand, income protection insurance is worth considering if your employer doesn’t provide extended sick pay. If you have financial responsibilities like a mortgage, rent or utility bills, income protection insurance can help cover these expenses if you’re unable to work for an extended period.

What are the benefits of life insurance and income protection insurance?

Here’s a summary of the key benefits of life insurance and income protection insurance:

Life insurance	Income Protection Insurance
✔️ Provides financial support to your family in the event of your death	✔️ Offers peace of mind if an unforeseen illness or injury prevents you from working
✔️ Helps repay your mortgage to secure your family’s home	✔️ Supports you over the long term so that you can focus on recovery instead of finances
✔️ Covers outstanding debts	✔️ Helps maintain your lifestyle and meet essential expenses
✔️ Can help cover funeral costs	✔️ Pays between 50-70% of your total income, ensuring you can cover your financial needs during recovery
✔️ Assists with educational needs or school fees for your children

How do I choose the right policy?

Choosing the right life or income protection insurance can feel overwhelming, but it’s essential for securing your financial future. Compare different options using a comparison tool, and always read the fine print to understand exclusions. Don’t forget to review your policy as your circumstances change to ensure it continues to meet your needs. 

Bottom line with Life/Protection policies

Planning for how your family will cope financially after your passing or in the event of a health issue isn’t easy, but it’s a crucial decision. Understanding what to look for in a policy can make this process much smoother.