Life Insurance vs Income Protection — Which One Do You Need? | Covermate Life

When it comes to protecting your family and your lifestyle, two products are often considered: life insurance and income protection insurance. While both are designed to safeguard your financial wellbeing, they do so in very different ways. Understanding the differences will help you decide whether you need one, the other, or both.

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What is Life Insurance?

Life insurance is designed to provide a lump sum payment to your loved ones if you pass away or are diagnosed with a terminal illness. This money can be used to pay off the mortgage, cover school fees, clear debts, or provide long-term financial security for your family.

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Life insurance is most valuable for:

• Parents with young children

• Couples with a mortgage or other large debts

• Individuals who want to ensure their family’s lifestyle can continue without financial stress

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What is Income Protection?

Income protection covers you while you are alive but unable to work due to illness or injury. Instead of a lump sum, it provides a monthly benefit (usually up to 75% of your pre-tax income). This helps you keep paying bills, rent or mortgage, groceries and day-to-day living costs while you recover.

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Income protection is especially important for:

• Primary income earners

• Self-employed individuals without sick leave

• Anyone whose household depends on their salary to meet ongoing expenses

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Key Differences Between Life Insurance and Income Protection

The key difference lies in what they protect you against. Life insurance looks after your family if you die or are diagnosed with a terminal illness. Income protection looks after you and your family if you are unable to earn your income due to sickness or injury.

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• Life insurance = long-term security for dependants.

• Income protection = short- to medium-term support for your living costs while you cannot work.

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Real-World Examples

• Life insurance example: Emma, aged 38, has two young children and a $600,000 mortgage. If she passed away, her life insurance policy would pay a lump sum to her partner, ensuring the mortgage is cleared and her children’s education is secured.

• Income protection example: Daniel, aged 42, is self-employed. A back injury prevents him from working for nine months. His income protection policy replaces 70% of his usual income, covering household bills and mortgage repayments during recovery.

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Should You Choose One or Both?

For many Australians, the best solution is not choosing one over the other, but combining both.

• Life insurance alone ensures your family is financially secure if you are no longer around.

• Income protection alone ensures you can continue to pay your bills and maintain your lifestyle if you cannot work.

• Together, they provide comprehensive protection: life insurance for long-term security and income protection for day-to-day resilience.

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Factors to Consider When Deciding

When choosing between life insurance, income protection, or both, consider:

1. Do you have dependants? If others rely on your income, life insurance is essential.

2. How secure is your income? If you’re self-employed or have little sick leave, income protection is critical.

3. What debts do you hold? Mortgages, car loans and credit cards are important to factor in.

4. What is your budget? Both covers come at a cost, but prioritising protection where your risks are highest is often best.

5. How long do you need protection? Income protection can cover you until retirement age, while life insurance usually covers you until age 65 or 70.

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How Covermate Life Can Help

Choosing between life insurance and income protection is not always straightforward. At Covermate Life, we compare policies from leading insurers and help tailor cover to your situation, whether you need one, the other, or a mix of both.

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Get in touch today for a personalised comparison and find peace of mind knowing your financial future is protected.