Content Writer
Former Senior Protection Advisor
When planning for the unexpected, it’s essential to understand the different types of insurance available. Two key options are income protection insurance and life insurance. Here, we’ll explore the differences between income protection vs life insurance to help you decide which one (or if both) might suit your needs.
What’s the difference between income protection and life insurance
Income protection insurance provides regular monthly payments (usually a percentage of your income) if you’re unable to work due to illness or injury. Meanwhile, life insurance pays out a lump sum to your chosen beneficiaries (like your spouse or family) if you die during the policy term.
Income protection is designed to help cover ongoing expenses like monthly mortgage repayments and bills until you return to work or retire. Meanwhile, life insurance provides immediate financial security, helping loved ones pay off debts (like a mortgage), cover large costs, or maintain their standard of living.
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Key features of both insurance types compared
Here’s a quick comparison of the key features of income protection and life insurance:
|
Income Protection Insurance |
Life Insurance |
|
Regular monthly payments |
Lump sum payout |
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Payments are based on your income (usually 50% - 70%) |
Payout is a pre-agreed sum based on your level of cover |
|
Payments are usually tax-free |
Payouts are usually tax-free |
|
Pays out if you can’t work due to illness or injury |
Pays out if you pass away (or become terminally ill, with some policies) |
|
You can usually make multiple claims while the policy is valid |
The policy ends when a claim is made |
|
Pre-agreed waiting time (deferred period) before payments start - usually 4, 8, 13 or 26 weeks |
Payouts are typically quick once the claim is accepted |
|
Shorter policies with longer deferred periods tend to have lower premiums |
Term life insurance for a fixed period (10, 20, or 30 years) tends to have lower premiums |
|
Longer policies with shorter deferred periods tend to have higher premiums |
Whole-of-life insurance that protects you until you die tends to have higher premiums |
|
Policies can be in place for a fixed period or indefinitely (to a maximum age or retirement) |
You can usually add extra benefits and cover onto a policy |
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Regular monthly payments help with living costs like mortgage repayments and food shopping |
Lump sum payment can help with paying off a mortgage, inheritance tax planning, funeral costs, and large expenses |
Why choose one over the other?
Deciding between income protection and life insurance depends on your financial priorities and circumstances. Here’s a rundown of both to help you weigh your options:
Life insurance: This might be the right choice if you want to ensure your family can cover major expenses - like a mortgage, significant debts, funeral expenses, or anything else - after your death. It’s ideal if you want to provide security for dependents, but it won’t help if you’re alive and unable to work.
Income protection insurance: This is a better fit if you’re more concerned about maintaining your lifestyle and covering bills if illness or injury stops you working (whether you’re employed or self-employed). It offers ongoing support while you’re alive, but doesn’t provide for your family after you pass away.
Can you combine the two?
Yes, income protection and life insurance can work hand-in-hand to create a robust safety net for you and your family. Life insurance ensures your loved ones are financially supported if you pass away, while income protection safeguards your income if you can’t work.
Some insurers offer bundled insurance packages, where you pay extra for income protection as an added life insurance benefit. Or, it might make sense to take out separate standalone policies with different insurers to reduce costs. A quick chat with an insurance advisor means they can tailor a plan to suit your budget and needs.
Get bespoke insurance quotes online with Teito
Comparing life insurance and income protection quotes online can be complex and confusing. There are various levels of cover for each type of insurance, and plenty of factors go into a quote - like your age, health, lifestyle, whether you’re a smoker, your occupation, and more.
The right policy (or combination) to use will depend on your circumstances and needs. Our insurance advisors can quickly provide bespoke quotes based on your situation and goals. They can quickly determine the correct type of cover to give you the peace of mind you want, and then find you the best insurance deal.
Ready for a free, no-obligation chat with an advisor specialising in income protection and life insurance? You can get started here.
FAQs
Yes, you can arrange group life insurance, which might include group income protection policies as an extra. For business owners, something like ‘key person income protection’ can help safeguard your company if you or a crucial employee can’t work due to illness or injury.
Or, if you’re employed and wondering what sort of life cover or income protection insurance you might get through a group policy, it’s always worth speaking with your HR team or management to see what benefits are currently in place.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.