What's the difference between income protection and life insurance?

Income protection insurance and life insurance serve completely different purposes in the Australian insurance landscape. Life insurance provides a one-time lump sum payment when you die or become terminally ill, while income protection replaces up to 70% of your regular income (before tax) if you're temporarily unable to work due to illness or injury. Income protection pays monthly benefits, not a lump sum, and continues until you return to work, reach the end of your benefit period (typically 2-5 years, though some policies offer coverage until age 65), or recover. Unlike life insurance which only pays once upon death, income protection can be claimed multiple times for different illnesses or injuries throughout your life. It covers both short-term issues like broken bones or surgery recovery and long-term illnesses. Importantly for Australian taxpayers, income protection premiums are tax-deductible when held outside super, but the benefits you receive are taxable income. Life insurance premiums are not tax-deductible (except in specific super circumstances), but payouts are generally tax-free. Most financial advisers recommend Australian workers have both: life insurance to protect dependents after death, and income protection to maintain lifestyle if illness or injury prevents working.