Sickness and Accident Insurance vs Income Protection Insurance
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.
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. |
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
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