Life insurance and income protection insurance – what’s the difference?

Get the whats, whys and whens

One’s for when you pass away, the other’s for when you can’t work 

These two types of insurance provide cover for quite different circumstances. Let’s look at the basics:

Life cover 

Our life insurance pays out a lump sum if you pass away during the policy term or if you’re diagnosed with a terminal illness and not expected to live longer than 12 months. 

It’s there to help provide financial support to your loved ones so they can keep on paying the bills and continue to live how they always have. It could help them pay for the funeral, pay off the mortgage, clear any debts, cover childcare and education costs, or just cover general living expenses. 

You choose how long your policy lasts. Once it's finished, your cover will stop and we won't pay out if you die. The policy will also end if a successful claim is made on it or if you stop paying your premiums. The policy has no cash-in value at any time.

Income protection insurance 

Income protection insurance gives you a monthly sum if you can’t work because of illness or injury. Depending on the policy you choose and whether your claim’s successful, you’d receive payments until: you’re fit to return to work, for a set amount of time, or until the end of the policy term.

This policy is designed to cover some of your lost earnings, helping you maintain your monthly outgoings and carry on living your normal life as much as possible. And, like life insurance, it’s a financial safety net for the other people who rely on your salary too.

With our income protection insurance, cover is paid in monthly instalments until the end of the policy term.

If you stop paying you premiums your cover will stop, and the policy has no cash-in value at any time.

We offer two kinds of cover for life insurance 

Those are level cover and decreasing cover. The cover you'd choose depends on your particular needs, if the lump sum is to help pay off a mortgage or other financial commitment, or if you're looking to leave a sum for your family to support living costs.

Level cover 

With level cover you choose how much cover you want and how long you want to be covered for. You then pay the same monthly premium for the length of the policy.

If the worst happens during the policy term and a successful claim is made, the policy will pay out a lump sum.

You may choose level cover to help your loved ones continue to live how they always have. The lump sum they receive could replace your lost salary or help to cover everyday costs. It could keep up monthly mortgage payments, or even pay off an interest-only mortgage, or pay for expenses such as a child’s university fees.

It’s worth bearing in mind that because your monthly payments stay the same, the cover amount won’t go up as living costs rise. You can choose to protect your cover from the effects of inflation, so that the lump sum won’t be worth less in the future, but this may mean a rise in your monthly premiums. 

If you choose to protect your policy against the effects of inflation, the maximum annual increase would be 15% to your premium and 10% to your cover 1.

Decreasing cover

With this type of policy, the cover amount you have goes down over the length of the term – but the monthly amount you pay stays the same. Because the cover amount goes down in value over time, decreasing cover tends to cost less than level cover. 

You may choose decreasing cover to help your loved ones pay off a repayment mortgage or a long-term loan. Because of this decreasing cover is also sometimes known as mortgage protection insurance. The value of what you’re paying off gradually decreases over time, and so does the cover. 

Here’s when income protection is paid and the factors that affect it 

Income protection policies pay out a tax-free monthly benefit, which you select when taking out the policy.

You can make as many claims as you need to within the policy term, but you’ll need to wait for a pre-agreed time, known as a deferred period, before you can start receiving your pay-out. You’re able to choose how long this deferred period is when you first take out the policy.  

There are certain factors that can affect the protection you get and the premium you’ll pay: 

  • Job
  • Age
  • Medical history
  • Time you have to wait before you can get a pay-out
  • How much of your income you want covered
  • How long you want to be covered for 

The riskier your job or the older you are when you take out a policy, the higher your premium will be. You can also apply for a plan with benefits that protect you from the effects of inflation – though your premiums may rise.

How your insurer defines your inability to work will affect if, and when, your policy pays out. Every policy has a definition of 'incapacity’, so look out for this. Those offering ‘own occupation’ will pay out if you can’t do the job you have at the point of making a claim. Aviva’s Income Protection Insurance only offers ‘own occupation’ cover. 

Can you have one without the other?

Yes, of course you can.

However, remember that, while both products are designed to offer financial protection, they provide different types of cover and pay out in different circumstances.

Parents walking their child with mountain backdrop

Life insurance

Life insurance helps give your family financial protection should you pass away within the policy term.

parents looking at their baby smiling

Income protection insurance

If you’re ill or injured and can’t work, our income protection insurance pays a portion of your lost earnings so you can focus on looking after your health.

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