Life insurance vs health insurance: key differences
Life Insurance -
You have worked hard for the life you love, so it’s important to understand the best way to protect it. Health insurance and life insurance are two options that you may be considering. Here we look at both types of insurance, how they differ and how they can work together.
What is life insurance and what does it cover?
Life insurance helps to provide financial protection for you and your loved ones to ensure you can keep living the life you love. There are four different types of life insurance cover:
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Life insurance in case of death
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Critical illness insurance (also known as trauma or recovery insurance)
More detail on these different types of life insurance cover is included below.
What is health insurance and what does it cover?
Private health insurance is a personal insurance that helps cover the costs of medical care. The right health insurance plan can help to cover a range of surgical and medical expenses. This might include emergency requirements—like stays in private hospitals, ambulance services and time spent in intensive care—or more everyday health expenses, like optical, dental or physiotherapy appointments. Private health insurance can help to cover the cost of treatments for specific health conditions, with payments usually going directly to the healthcare service.
If you live in Australia, you’re likely to be benefiting from Medicare, meaning that many of your health care costs are already accounted for. However, private health insurance may provide you with additional medical insurance and allow you to choose from a broader range of care options—sometimes resulting in faster treatment as a private patient.
Having health insurance cover in Australia can also come with tax benefits as you may be eligible for the private health insurance tax rebate. Check with the ATO for more information.
What is the difference between life insurance and health insurance?
Health insurance and life insurance are different, however they can work together to protect you across a range of scenarios. Take a look at some of the key similarities and differences in the below table:
| Health Insurance | Life Insurance | |
| Policy typically covers | Specific medical expenses including diagnostic services, preventative care, and hospital admissions. | Death, total and permanent disability, diagnosis with a terminal illness or critical illness (depending on type of life insurance purchased) |
| Cover in case of death | No | Yes |
| Benefits | Typically paid out directly to healthcare providers to cover a portion of your expenses. | Pays a lump sum or monthly payment to you or your nominated beneficiaries depending on the insurance type. |
| Tax status | Private health cover should be reported in your tax return as it may help with your Medicare levy. | Income protection premiums may be tax deductible, but not all types of life insurance premiums have an impact on tax. |
Here’s a quick overview of how different life insurance products could support you or your family in a time of need:
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Critical illness: In the event you’re diagnosed with specified serious medical conditions or critical illnesses, critical illness cover can provide a lump sum payment that gives you the freedom to manage your expenses as you see fit, to ensure you can focus on your recovery without financial stress. During recovery there can sometimes be unexpected costs that may not be covered by Medicare or Private Health Insurance, such as some types of rehabilitation equipment, ongoing nursing case, home modifications, living expenses and bills.
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Income protection: Income protection gives you an alternative source of income if you are unable to work due to an illness or injury. This can help to keep your household up and running and provide for your loved ones help while you recover.
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Total permanent disability (TPD): TPD insurance can provide a lump sum payment if you were to become permanently disabled due to accident or illness and are unlikely to ever be able to work again.
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Life insurance: Life insurance provides a death benefit to your loved ones in the event of your death, or if you are diagnosed with a terminal illness. This provides you or your loved ones with a lump sum payment to help ensure financial security.
Do you need both life insurance and health insurance?
It’s important to consider your insurances holistically; having both life and health insurance in place (including critical illness, income protection and TPD insurance) can give you and your family additional financial protection if something were to happen to you.
An example of the way health insurance and life insurance can work together is in the instance where an individual is unfortunately diagnosed with cancer, and due to treatment and recovery, is unable to work for several months.
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Health insurance: Depending on your level of cover, health insurance could cover certain treatment costs, such as hospital stays or chemotherapy.
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Critical illness: A lump sum critical illness payment could help pay for advanced treatment and any out-of-pocket expenses, such as travelling to and from hospitals and rehabilitation. It could even be used to take your loved ones on a holiday once recovered. It’s your choice how you use this lump sum payment.
A cancer diagnosis (or health issue of another kind) can have a wide range of financial implications, and each type of insurance can play a different role to help provide financial support for you and your family.
Why should I keep my life insurance policy if I have health insurance?
Health insurance alone won’t protect you and your family against lost income, or provide a lump sum pay out if you were to become critically ill or be injured. However, these types of additional protection may be achieved when combined with one or more of the different types of life insurance.
How to choose the life insurance option that works for you
Insurance is designed for the individual, so only you know what will suit your particular circumstances. However, there are a few things to consider when deciding on an insurance option. These include your current income, level of debt and dependents—who is relying on you going to work and earning to keep up with regular outgoings like a home loan or education fees? What would happen to your household if you were to become ill or unable to work?
Look into factors like waiting periods, inclusions, exclusions, terms and conditions for the policies that you are considering to ensure they suit you.
You should also think about your household budget and be comfortable that you are able to afford the insurance premiums associated with your policy.
At TAL, we want to ensure you’re protected, no matter what happens. Having both health and life insurance in place can be a great way of covering different eventualities. Everyone is unique, so when it comes to life insurance, we believe in giving you options.
If you would like to explore our different life insurance policies, you can use our cover builder tool or find an adviser here.
Any financial product advice is general in nature only and does not take into account any person’s objectives, financial situation or needs. Before acting on it, the appropriateness of the advice for any person should be considered, having regard to those factors. Persons deciding whether to acquire or continue to hold life insurance issued by TAL should consider the relevant Product Disclosure Statement (PDS). The Target Market Determination (TMD) for the product (where applicable) is also available. Life insurance issued by TAL Life Limited ABN 70 050 109 450 AFSL 237848.