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Life insurance vs income protection insurance: which one do I need? 

5 mins read
by Lisa-Marie Voneshen
Last updated Thursday, June 6, 2024

With many insurance policies to choose from, you may be struggling to decide between life insurance and income protection. We reveal how these policies work and if you can have both.

The right insurance policy can help protect your loved ones if the worst happens.  

However, there are many different types of insurance policies designed for various circumstances, which can make it difficult to figure out which one to get. 

We explore life insurance and income protection, how these policies work, key differences and whether you can have both. 


  • Life insurance and income protection offer financial protection but work differently. 

  • Understanding how these different insurance policies work can provide peace of mind. 

  • An insurance broker can recommend the right policy based on your circumstances. 

Why is insurance important? 

Insurance can help you and your loved ones navigate tough and uncertain times, whether you’re unable to work due to an injury or illness or pass away. 

It offers peace of mind so you know what to anticipate should the unexpected happen. 

Insurance also may pay out a lump sum or regular payments in certain circumstances, which is vital if you have loved ones who depend on you.  

What is life insurance? 

Life insurance is a policy in which you pay premiums, and your insurer pays out a lump sum when you pass away.  

You can get a policy that pays out for a death during the term, known as term-life, or one that pays out whenever the policyholder passes away, which is whole of life insurance

Life insurance can offer your loved ones financial support during a difficult time. 

It’s worth considering if you have dependents or a mortgage, as joint life insurance can pay off the outstanding amount if you or your partner pass away.  

You can even use life insurance to cover an inheritance tax (IHT) bill if you set it up to pay into a trust, but it’s recommended you get legal and financial advice before doing this.  

How much you pay for life insurance depends on your circumstances, including your age, health, lifestyle, and desired payout.  

While you can search for a policy independently, an insurance broker can help you find the right policy for your unique circumstances. Unbiased can quickly connect you to a qualified broker. 

What is income protection? 

Income protection is an insurance policy that pays a replacement income during your insurance term – if you can’t work due to illness or injury. Similarly to life insurance, you pay monthly premiums to an insurance provider to cover your income protection.  

This type of insurance policy usually covers 50% to 70% of your monthly income, but this can vary between providers and the amount of cover you choose.  

You should check if there are any limits on the payout amount, what illnesses are covered, and if you’re comfortable with the deferral period, which is the time between stopping work and starting to receive payments. 

There are different types of income protection policies, including short-term, long-term, and occupation-specific, the latter of which allows you to claim if you can’t do your job anymore instead of being able to work.  

If you have dependents who rely on your salary, income protection is worth considering for financial peace of mind. 

So, if you’re ever in the unfortunate situation of being unable to work, you’re still getting an income that will likely exceed what you can claim via state benefits.  

The cost of income protection varies as it depends on many factors such as your age, health, hobbies, lifestyle, risk level at work, level and type of coverage, and deferred period. 

An insurance broker can look at your unique circumstances to determine the right income protection policy for you.  

What is the difference between life insurance and income protection? 

The main difference between life insurance and income protection is the former pays out a lump sum if the policyholder dies. In contrast, the latter pays a replacement income for a set period if you’re unable to work.  

Also, while income protection pays a regular amount over a set period, life insurance can cover your outstanding mortgage if either you or your partner dies. 

If you and your loved ones would struggle without your salary, it’s wise to consider income protection.  

Can you have life insurance and income protection? 

Yes, you can have both a life insurance and income protection policy. 

While this will incur extra costs, it will offer peace of mind, particularly if you have a family that relies on you and your partner.  

A broker can help you determine the right policies and level of coverage so you’re not overpaying for insurance. 

They can also regularly review your policies and adjust if your circumstances change. 

Are there other insurance policies worth considering? 

There are other insurance policies that could provide extra financial protection for you and your loved ones. 

For example, critical illness insurance offers a lump sum if you are diagnosed with a serious, usually long-term, illness or disability to help cover your treatment or expenses. 

You pay monthly premiums based on your age, gender, medical history, and job.  

There’s also mortgage protection insurance, which helps you pay your monthly repayments if you can’t work due to illness, injury, or redundancy.  

This insurance policy can help you avoid losing your home if the unexpected happens.  

How do you find the right insurance policy? 

You can search for your insurance policy or use an insurance broker to find the right one. 

If you do independent research, you must be aware of any restrictions and exclusions that could prevent you from receiving a payout. 

Insurance policies can vary widely, so using an insurance broker can be helpful. 

An insurance broker can review your circumstances and future financial goals to recommend the right policies and coverage and find the most competitive deal.  

They can clearly explain any exclusions or restrictions that may impact your cover, which can happen with cheaper policies, and ensure you’re not paying for unnecessary extra cover.  

A broker may be able to find ways to bundle your insurance policies, so you save money. 

Unbiased can quickly connect you with a qualified insurance broker. 

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Lisa-Marie Voneshen
Lisa-Marie Voneshen is a Senior Content Writer at Unbiased. She is an award-winning journalist with nearly a decade of experience writing and editing content across various areas, including personal finance and investing.