Do I need life cover, income protection – or both?

Life cover provides a lump sum payment in the event of your death or a terminal illness diagnosis, whereas income protection helps safeguard your ability to earn an income if you become sick or injured. So is it enough to have one type of cover, or do you need both?

Life cover and income protection are two ways to help financially protect you and your family in the event that something happens to you. They each offer their own set of benefits and cater to different needs. Choosing which one – or if both – is right for you will likely depend on a number of factors, such as your income, whether you have any dependants and what your financial needs are.

What is life cover insurance?

Life cover, also known as death cover, supports you and your loved ones if you pass away or receive a terminal illness diagnosis. Payment is in the form of a lump sum to your nominated beneficiaries. You can nominate more than one beneficiary and decide how much each person will receive.

This type of cover can ensure your family and dependants continue to maintain the living standard they’ve become accustomed to and cover debts or expenses, even if you’re no longer around. After a successful claim, they won’t have to stress so much about paying bills, housing expenses or school fees. The payment can also help to cover funeral costs.

Your premiums are based on a range of factors, including lifestyle, occupation, age and the amount of cover you choose. When choosing a level of cover, you’ll also want to consider what other sources of income you and your family have, such as super, investments, assets and savings that may supplement any lump sum in the event of a payout.

What is income protection insurance?

Income protection insurance works as a substitute for part of your income if you become injured or seriously ill and are temporarily unable to work. It can help you cover everyday expenses like rent or mortgage, bills and groceries until you’re well enough to get back to work.

You might think that workers’ compensation is enough to protect you in the event of an injury. However, it only covers you if an accident happens while carrying out your work duties. Income protection covers you even if the illness or injury happens outside of working hours, for example, at home or while on holidays.

With some products, including Zurich Ezicover, you can choose protection that includes both sickness and injury, or opt for injury-only cover. With Zurich Ezicover, you can receive up to 70 percent of your income for a benefit period of one, two or five years – you choose this when you apply for cover.

If you’re the primary income earner, having income protection can provide that extra peace of mind that you and your loved ones will be taken care of if you fall seriously ill or are injured and unable to work.

Should you have both?

Holding both life cover and income protection can help safeguard you financially from a broad range of unforeseen occurrences. It’s especially important to consider the type of cover you have when a major life event happens, such as getting married or having children. When you have financial obligations such as a mortgage or dependants who rely on your regular income, you may want to ensure your family has the protection they need if something happens to you.

What’s more, if you already have a life cover policy, another thing to consider is the cost of your premiums and how you’d continue to pay them if you lost your income. They would be an additional expense – perhaps an expense you’d have to sacrifice if you didn’t have income protection.

Some income protection policies also offer a death benefit; however, it’s usually substantially less than the lump sum received under a life cover policy.

Case study: Let’s meet Anton, a father of two

Anton is a 45-year-old father of two children, aged four and six. He works full time as an engineer on a salary of $8,000 per month. His spouse, Anne, works part time in childcare for 24 hours a week, although she’s looking to return to full-time work in the future.

Anton and Anne both have life insurance. Anton also took out income protection insurance after their second child was born with a two-year benefit period. He later had an industrial accident at work that left him unable to return to his duties for 18 months.

After a one-month waiting period, he started to receive monthly payments for 17 months, at $5,600 per month – equivalent to 70 percent of his monthly income.

Anton was eligible for workers’ compensation but knew it could take some time to settle. So, in the meantime, his income protection payments allowed him to continue supporting his family. If he does receive workers’ compensation, this will be offset against his income protection payments.

Anton’s case illustrates that income protection insurance can provide a much-needed source of immediate funds in the event of an injury or illness.

The life cover policies both Anne and Anton hold are also important – should either suffer a terminal illness or early death, they can have comfort in knowing their family will be financially supported.

When deciding on which product or combination is right for you, consider the circumstances during which you may need to make a claim, and what you or your family might need at that time and beyond.