Life, TPD, trauma and income protection: what's the difference?
Key points
- Life, TPD and trauma cover pay lump sums. Income protection pays a monthly benefit.
- Life, TPD and income protection can generally be held in super. Trauma can't.
- Each policy's definitions decide when it pays, so the PDS matters.
Personal insurance (sometimes called life insurance or risk insurance) covers you, rather than your house or car. In Australia it usually comes in four types. They pay out in different situations, and they work differently inside and outside super.
| Cover | Pays when | How it pays | In super? |
|---|---|---|---|
| Life | You die, or are diagnosed with a terminal illness (most policies) | Lump sum | Yes |
| TPD | Illness or injury means you're unlikely to ever work again | Lump sum | Yes, generally ‘any occupation’ |
| Trauma | You're diagnosed with a listed serious illness or injury | Lump sum | No |
| Income protection | Illness or injury stops you working for a while | Monthly benefit | Yes |
Life insurance
Life insurance (also called death cover) pays a lump sum to your beneficiaries or your estate if you die. Most policies also pay the benefit early if you're diagnosed with a terminal illness, usually where death is likely within a set period, such as 24 months.
People often think about life cover when others rely on their income: a partner, children, or a lender holding a mortgage.
Total and permanent disability (TPD) insurance
TPD insurance pays a lump sum if illness or injury means you're unlikely to ever work again. Whether a claim is paid depends on the TPD definition in your policy. The two most common are ‘own occupation’ (you can't work again in your own job) and ‘any occupation’ (you can't work again in any job you're suited to by education, training or experience).
Read more about TPD definitions.
Trauma insurance
Trauma insurance, also called critical illness cover, pays a lump sum if you're diagnosed with one of the conditions listed in your policy. Cancer, heart attack and stroke are among the most commonly claimed. Unlike TPD, you don't need to be unable to work. Unlike income protection, the money isn't tied to your income.
New trauma cover can't be held inside super (since 1 July 2014), so it's held and paid for outside super.
Income protection
Income protection pays a monthly benefit, commonly up to 70% of your income, if illness or injury stops you working for a period of time. You choose a waiting period (how long before payments start) and a benefit period (how long they can last).
Read more about waiting and benefit periods.
How they work together
The four covers pay in different situations. You can hold more than one, inside or outside super, and the choice is yours.
Check the PDS
Every insurer defines its terms differently. Before choosing any cover, read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) from the insurer. What are a PDS and TMD?
This guide is general information only. It doesn't take into account your objectives, financial situation or needs. Consider the relevant PDS and TMD from the insurer before making a decision.
Read more: Life insurance · TPD insurance · Trauma insurance · Income protection. Or ask for a quote; you’ll be contacted to prepare your quotes.
