Sickness and Accident Insurance vs Income Protection Insurance

Published: May 2, 2018

If you have an existing personal sickness and accident insurance policies, you might be wondering about the differences between this type of cover and income protection insurance policies.

The main difference is that sickness and accident insurance policies can be cancelled by the insurance company, whereas income protection insurance policies cannot.

Many years ago, income protection insurance was also called sickness and accident insurance. So, you might want to make sure the income protection policy you have was issued by a life insurance company and not a general insurer.

Let’s have a closer look at these two seemingly similar policy options.

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What is personal accident and sickness insurance?

Personal accident and sickness insurance is generally marketed as disability cover for specific industries or occupations and is usually offered by general insurance companies. You’ll usually have a choice of either a lump sum payment or monthly benefit should you suffer a bodily injury directly related to an accident or a sickness as listed in the insurer's product disclosure statement (PDS). 

What is income protection insurance?

Income protection insurance is available from life insurance companies and protects the insured person from loss of income when unable to work for a specified period due to an illness or injury. Income protection insurance generally provides a monthly benefit of up to 75% of your regular income.

Personal accident and sickness insurance vs income protection

Both accident and sickness insurance and income protection are designed to provide you with financial assistance should you be unable to work because of an illness or injury. However, even though they appear very similar, they differ in relation to their benefit and waiting period, as well as the insurer's ability to cancel your policy during significant life changes.

Compare Accident and sickness insurance against income protection insurance

Compare Accident & Sickness Income Protection
Issued by General insurance companies Life insurance companies
Coverage Can be taken as sickness only, accident only or a combination of both. Covers both illnesses and injuries, related to natural or accidental causes.
Policy term Policies are generally suitable for short to medium-term disability coverage. Provides longer term coverage and benefits.
Underwriting process Usually quicker than income protection policies, with fewer medical questions. But may increase your chance of having a claim denied. More extensive underwriting typically required and depending on your occupation and health, medical exams might be requested.
Cancellation Can be cancelled at the insurer's discretion. Only the insured person has the right to cancel their policy.
Renewable The insurer may decline to renew the policy, if there are changes in the life insured's health or occupation. Generally guaranteed renewable. Meaning, an insurer cannot cancel your policy or increase your premiums, irrespective of the number of claims made under that particular policy, or any changes to your health, occupation, or past-times.
Policy types Usually indemnity style products only, where the monthly benefit upon claim would be based on the insured's actual income in the 12 months before disability. Offers indemnity, agreed value or guaranteed agreed value options. With agreed value and guaranteed options, the life insurance company will not review or reassess the monthly benefit shown on the policy schedule in the event of total disability, regardless of a decrease in income.
Benefits Can cover up to 100% of the insured's income, but only up to a five-year benefit period. Covers around 75% of the insured person’s regular income. Can choose a benefit period up to your age of 65.
Waiting periods Some policies can be taken with a zero-day waiting period but have a maximum benefit per total disability claim, for example $30,000. A minimum waiting period of 14 days, but you usually have the option of 30, 60, 90 or 120 days. The longer your waiting period, the cheaper your premium.
Exclusions A broader range of exclusions than income protection insurance policies. For example, benefits will not be payable in the event of terrorism; participation in organised football; driving or riding in any race, mental illness; HIV/AIDS; and even exposure to radioactivity. Income protection policies usually excludes involuntary unemployment, disablement due to intentional self-inflicted injuries, a healthy pregnancy, uncomplicated childbirth or miscarriage.

Which should I choose, personal accident and sickness insurance or income protection?

How you protect your income should be based on your personal circumstances and what you can afford. For example, a contract builder with a fluctuating income would not require the same level and type of coverage than a 9 to 5 administrative clerk.

As with all insurance types, the best accident and sickness insurance policy is dependent on your needs, so be sure to always seek guidance from a specialist before committing to a specific policy.

Case study between sickness, accident insurance and income protection

Consider Brian, who is currently a barrister, and has an ongoing personal disease and accident insurance policy.

Brian recently decides he has had enough of law and wants to pursue his lifelong dream of being a stuntman. Under a sickness and accident insurance contract, Brian would generally need to inform the insurance company that he has changed occupation, and it will then be up to the insurance company to decide if the policy would continue and under what terms. It is unlikely a general insurance company would continue cover for Brian. Some accident and sickness policies will stop paying benefits if the insured commences a new occupation while on a claim. 

With income protection insurance policies, the cover would continue as if Brian were still a barrister, and a disability claim would be measured against the duties of his new, more hazardous occupation. If Brian injured his hand, it is likely he would be totally disabled from his new occupation.

Personal accident and sickness insurance for contractors in Australia

Contractors and tradespeople are usually self-employed and won’t have sick leave to fall back on should they become ill or injured. If you suffer an accident or sickness that prevents you from working, you need a policy that will provide you with an ongoing benefit to help you manage day-to-day living expenses and medical costs.

If you are a contractor or self-employed person with a fluctuating income, you might want to ask help from a specialist and provide your specific occupation and budgetary requirements.

Such a benefit allows you to recover without having to worry about day-to-day living expenses, mortgage or rental payments and other costs.

However, select insurance companies do provide a certain income protection policy that helps you cover loans and mortgage payment for a certain period if you are made redundant.

Frequently asked questions

What do accident and sickness insurance cover?

Sickness and accident insurance usually covers you against the loss of income when you are unable to work because of an illness or injury. Short-term coverage of up to 5 years can be provided by general insurance companies. However, they may cancel your policy if your health status or occupation changes.

How does accident and sickness insurance influence my sick leave?

Neither accident and sickness insurance or income protection coverage will have any influence on your sick leave entitlements provided by the company that you are employed with.

What are group accident and sickness insurance?

Group personal accident and illness insurance is usually arranged for by your employer and provided to a group of employees. The employer will usually pay the premiums and might subtract these costs directly from their employees’ salary.

Does sickness and accident insurance have GST?

General Sales Tax (GST) is not applicable on income protection policies because the ATO does not consider income protection payments as goods or service, but rather as a replacement for your income.

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2 Comments

  • Trevor |

    Hi, I ride dirt bikes and mountain bikes on a regular basis and was wondering which insurance cover to get, income protection or personal injury insurance? Your feedback would be very much appreciated.

    • SPECIALIST
      Anneke Van Aswegen |

      Hi Trevor.
      Insurance for extreme sports, are generally assessed on a case by case basis and will depend on things like, how many accidents you’ve had in the past, whether you wear protective gear and the speeds and engine size of your motorbike.

      Choosing between income protection and personal injury insurance depends on which insurer provides you with the best coverage at the cheapest price.

      Whether an insurer will exclude extreme sports/hobbies from your income protection policy depends on the insurer, so you might want to compare policies before deciding. Some insurers might provide full coverage, but request you pay a higher premium for the increased risk.