Life insurance or health insurance… are they the same? And which one do I actually need?!

Women with CentsBlog, Insurance

If you’ve ever wondered what life insurance is, and whether there is a difference between health cover and life cover then this one is for you.  
 
And you are certainly not alone.  According to Lifewise.org.au:
 
41% of Australians say life insurance is too complicated.  
1 in 4 don’t know where to even start.  
63% of those with a partner say they have not discussed life insurance with their partner.  
Almost a third say life insurance is too unpleasant or difficult to discuss.  
And 1 in 5 say it’s too hard to select a product that meets their needs. 
 
From those stats it’s easy to see why there are a lot of confused Australians out there.  
 
So today I wanted to clear up a misconception about insurance, and help you better understand what’s out there, because it is important to have the right cover. 

What’s the difference between life cover and private health cover?

Private health insurance can help you pay hospital and medical costs not covered by Medicare. 

For example, if you break your leg and need to be taken in an ambulance to hospital, your private health insurance may cover that. And if you need to see a specialist, or have an operation on your leg, your health insurance may cover that too. What is covered depends on your individual policy, but generally speaking private health insurance helps with out of pocket medical costs.

Life insurance is different. It doesn’t typically cover medical costs, instead it pays you an agreed amount if you suffer a particular life event. It is then up to you what you use the money for. In general there are four types of life insurance and they cover different things: 

Life insurance will pay a lump sum if you pass away. In general, this can help your family when you’re gone, or pay off any debts you have outstanding. 

Total and Permanent Disability insurance will pay a lump sum if you become totally and permanently disabled and are unable to work ever again. This payment can be used to replace your income for a period of time, help you pay off debts, help your family, or help you with medical care. 

Income Protection insurance will replace part of your income if you’re unable to work for a period of time due to illness or injury. So it doesn’t cover medical costs per se, it helps you cover the other expenses that you have to keep paying even when you aren’t working, like your rent or food. 

Trauma cover, or Critical Illness cover, will pay a lump sum if you are diagnosed with a specified illness or injury. These policies include the major illnesses or injuries that will make a significant impact on a person’s life, such as cancer or a stroke. Depending on how much cover you have, the payout received from the trauma cover can be used to cover out of pocket medical expenses, assist with living costs, etc.

So, do you need everything?

As you can see health cover and life insurances cover different things – health insurance covers medical costs, whereas life insurance can help with life costs. So it’s important to consider both when reviewing your insurance needs. But the right insurance for you really does depend on your personal circumstances.  
 
I advocate seeing a financial adviser when it comes to life insurance as it’s not the easiest area to navigate! We’ve also developed an online training module to help you understand life insurance in more detail. Take a look at the Making Cents of Money program Insurance module here.

Submit a Question!

Have a finance question you’d like answered? Why not drop me a line! Each week I would love to answer a question from the community. Click below to get in touch.

ASK TASH

The information provided by Women with Cents is general in nature. It doesn’t take into account your objectives, personal financial situation or needs. Think of it as educational material in which to help you make more-informed decisions. We recommend you obtain financial, tax and credit advice specific to your situation before making any investments or financial decisions.

Sova Financial Pty Ltd Trading as Women with Cents. ABN 71 163 435 836 | Sova Financial is an authorised Credit Representative Number 443432 of Finsure Finance & Insurance Pty Ltd, ACL 384704, ABN 72 068 153 926| Sova Financial is a corporate authorised representative no 468977 of Shartru Wealth Management, AFSL 422409, ABN 46 158 536 871