Life Insurance vs. Health Insurance

Find out how life insurance is different from health insurance right here with Savvy.

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, updated on July 19th, 2023       

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Life Insurance Banner - Young woman driving a car

There are many different insurance options available for you and your family to help cover you for a range of potential events. The two main choices Australians have for personal cover are life insurance and health insurance, and while they’re both important and each has a range of advantages, it’s worth understanding how they work and their differences.

You can do just that with Savvy. Find out more about the differences between life and health insurance policies (and the benefits of both) before buying any of your policies so you understand how each type of cover works.

What is life insurance and how does it work?

Life insurance is a type of policy which can offer you coverage in the form of a lump sum payout (or ongoing benefit in some cases) if you make a successful claim. The amount of coverage you need will depend on your individual circumstances and those of your family. The specific incidents which are covered by life insurance can vary depending on the type of policy you take out, with four main options available under this category of insurance. These include:

  • Life cover: can pay out a lump sum benefit up to whatever amount is financially viable for you in the event of your death or terminal illness diagnosis.
  • Income protection insurance: can pay you an ongoing benefit worth up to 70% of your monthly income if you’re unable to return to work due to an injury or illness. These policies come with waiting periods of between two weeks and two years before you’re able to start receiving payments.
  • Total and permanent disability (TPD) insurance: can pay out a lump sum benefit worth up to $5 million if you’re permanently disabled due to injury or illness and either unable to return to your previous job (Own Occupation) or any work at all relevant to your education, training and experience (Any Occupation).
  • Trauma insurance: can pay out a lump sum worth up to $2 million if you suffer a critical illness or serious injury. This can include conditions such as strokes, cancer or significant head injuries.

What is health insurance and how does it work?

In contrast, health insurance is a policy which is designed more specifically to help cover the costs of medical treatment, both within and outside of hospital. This is obtainable in Australia both through Medicare, our national public health insurance scheme, and private health insurance.

Like life insurance, what your medical insurance covers varies depending on the type of policy you have and the level of cover you elect to receive within it; for example, under private hospital insurance, you can choose between gold, silver, bronze and basic cover, each offering a different range of inclusions. These include:

  • Medicare: provides free medically necessary treatment for public patients in public hospitals, as well as partially or wholly covering the cost of consulting with certain doctors or specialists.
  • Hospital cover: can covers many of the costs related to treatment you receive in hospital as a private patient, with the clinical categories included dependent on the level of coverage you buy. Private hospital cover can also enable you to choose your doctor and receive a private room (both subject to availability), as well as reduced waiting periods if you’re looking to have elective surgery.
  • Ambulance cover: can cover the cost of being transported to hospital via ambulance. This is available either separately or as part of another health insurance policy. Some state governments offer free ambulance cover to residents, so check their website if you’re unsure what you may have access to.
  • Extras cover: can cover treatments or services outside of hospital not included under Medicare, such as dental, physio, optical and more.

What are the differences between life insurance and health insurance?

There are many differences between life insurance and health insurance which are important to know. These include:

Life insurance Health insurance
Offers a single lump sum payout or ongoing benefit (income protection insurance) which can be used for a range of purposes.
Its benefit comes in the form of entirely or partially covering costs relating to a range of treatments. Your insurer pays for this directly, meaning you’ll never receive the money yourself.
Life insurance policy cost is based on your life factors, such as your age, health, occupation, family medical history and whether you smoke.
Health insurance policy cost is based on the level of protection you pick and the insurer you elect to go with, as well as the state or territory you’re living in.
Doesn’t come with any requirement for an excess, with the full insured amount paid out upon a successful claim.
You may be required to pay an excess, which is the out-of-pocket cost you take on when making a claim. The higher your excess, the less your insurance will cost.
Typically a more involved claims process which requires your beneficiary to submit documents such as a death certificate, information on your general health and further policy details.
Claims can often be made on the spot with HICAPS, a system which enables you to claim instantly using your private health card.
Policyholders are generally covered for a set life insurance term, generally between ten and 30 years, which will expire if you reach the maximum age set by your insurer.
Private health insurance is renewed every 12 months, with the cost of premiums and policy benefits able to be adjusted each year. No maximum age is applicable.
Life insurance is optional, with no requirement to hold a policy in Australia.
Private health insurance also isn’t mandatory, but you may be required to pay an added tax (the Medicare Levy Surcharge) if you’re earning above a certain income and don’t have hospital cover.

Should I buy life insurance and private health insurance?

As you can see, there are many benefits to both life insurance and health insurance, which offer very different forms of coverage without any real overlap. They serve individual purposes which can help both you in the short term and your family in the long term. As such, it’s well worth considering your current situation and the coverage you need to see which types of life insurance and health insurance best meet your needs.

Frequently asked questions about life insurance and health insurance

How is funeral insurance different from life insurance?

Funeral insurance is different from life insurance in that it only offers coverage for the cost of your funeral, rather than any other expenses relating to your death or treatment. Additionally, the most you’re likely to be covered for is $15,000, which is much lower than life insurance payouts, which can reach up to millions of dollars (and can also be used to cover funeral expenses).

Is whole life insurance still available in Australia?

No – whole life insurance was a type of policy which, as the name suggests, offered protection for the entirety of the policyholder’s life. However, it also came with the ability to ‘cash out’ on your policy and receive a lump sum before you died. A large part of why this type of cover is no longer available in Australia is that compulsory superannuation effectively replaced the need for it. These days, you can take out a term life insurance policy.

What is indexation in life insurance and can I get it in health insurance?

Indexation in life insurance is the process of adjusting your insured amount in line with inflation. For example, if the cost of living went up by 2% over a given year, insurers who offer inflation-proofing on their policies would increase your insured sum by 2%. Because you don’t receive the funds yourself and policies are updated on a yearly basis, this doesn’t apply to health insurance.

Can I get life insurance or health insurance for my whole family?

Both life insurance and medical insurance offer policies which provide coverage for not just you, but your family. In the case of family life insurance, you’ll generally have to buy a joint policy for you and your partner and include additional cover for your children. Family health insurance policies are structured similarly, though children can be covered up to the age of 31 with some insurers (provided they satisfy their eligibility criteria for dependents).

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Compare life insurance policies side-by-side

Through Savvy, you can consider a range of competitive life insurance policies from reputable insurers, whether you're after life, income protection, trauma or TPD cover. Get the ball rolling on comparing your available options today!


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