Personal Accident and Illness Insurance vs. Income Protection: What’s the Difference?

When life takes an unexpected turn, your ability to earn a steady income can be put at risk. For small business owners, sole traders and contractors who may not necessarily have the same protections as salaried employees, like paid sick leave, annual leave, or workers compensation, which can lead to a significant financial strain.

Two types of cover are often considered to help manage this risk: Personal Accident and Illness insurance and Income Protection insurance. These policies  may seem similar, but there are important differences in how they work, what they cover, and which one might be right for your situation.

In this article, we’ll take a look at each type of insurance to help you decide which type of cover you may want or whether you may wish to consider both. Please note that this information is general in nature. Consider seeking advice from a licensed financial adviser to determine what’s right for you.

What is Personal Accident and Illness (PA&I) insurance?

Personal Accident and Illness insurance (also sometimes called Personal Accident and Sickness insurance) provides a weekly income benefit following an accidental injury or illness once signed off from work by a medical practitioner for a set amount of time. It can also include benefits if, because of the injury or illness, you become permanently disabled or pass away.

Personal Accident and Illness insurance is commonly taken out by small business owners and sole traders.

The benefit acts as a safety net to help cover everyday expenses while you recover. Without the stress of worrying about your business and income slowing down, you can focus on getting better sooner.

What is Income Protection insurance?

BizCover do not sell Income Protection insurance; however, as Australia’s number one online business insurance service, we do know a thing or two about insurance.

According to moneysmart.gov.au, Income Protection insurance is designed to replace a portion of your regular income if you’re unable to work due to illness or injury. Most policies cover between 70% and 85% of your pre-tax earnings, paid out in regular instalments (similar to a wage) until you’re able to return to work or until the policy’s benefit period ends. This could be a defined period or sometimes up to age 65 depending on your policy.

What is the difference between Personal Accident insurance and Income Protection insurance?

While Personal Accident insurance and Income Protection may seem like very similar polices, there are some differences which are beneficial to understand.

Some of the main differences include:

• Personal Accident & Illness is usually sold as general insurance.
• Income Protection is typically sold as life insurance.
• Because PA&I is general insurance, the insurer can cancel the policy or choose not to renew it in certain situations (for example, non-payment, misrepresentation, or other contract breaches).
• Income Protection policies are generally guaranteed renewable, meaning once you’re accepted, the insurer can’t cancel your cover or change your terms just because your health, occupation, or risk profile changes later, as long as you keep paying premiums and were truthful when applying.
• Personal Accident & Illness Insurance premiums are usually calculated based on your occupation risk and the type of benefits you choose.
• Income Protection offers broader coverage and is built to support you over a longer period of time. Instead of fixed benefits, the policy pays a percentage of your income, which makes the protection more comprehensive but also increases the cost.

Because Income Protection involves more detailed underwriting, you can generally expect health questions and sometimes medical assessments as part of the application. While it takes longer to put in place, the trade-off is more robust, long-term security for those wanting stronger financial stability if they’re unable to work for an extended period. 

In contrast, PA&I insurance covers you for accidental injury and specified illnesses and provides a fixed benefit amount, regardless of how much income you were earning before your accident or illness.

Do I need both Personal Accident and Illness insurance and Income Protection?

Choosing between Personal Accident and Illness insurance and income protection often comes down to your individual circumstances. Below are some examples of factors to consider.

You may wish to consider Personal Accident and Illness insurance if:

• You work in a physically demanding or higher-risk role and want cover that specifically supports you if you’re injured (or experience a covered illness).
• You’re self-employed, a sole trader or contractor and don’t have sick leave or workers compensation to fall back on.
• You need a simple, affordable way to create a safety net for day-to-day bills while you recover.
• Your budget is tighter right now, and you want straightforward protection without the higher premiums often associated with Income Protection.

You may wish to consider Income Protection insurance if:

• Your ability to earn an income is central to meeting ongoing commitments like a mortgage, rent, or family expenses.
• You want cover that replaces a percentage of your income, rather than a fixed weekly benefit.
• You’re concerned about being off work for a longer period and want more comprehensive, longer-term support.
• You can afford higher premiums in exchange for broader cover and stronger long-term financial security if you can’t work.

Which options are right for me?

For some people, the best approach is to combine both types of cover. Personal Accident and Illness insurance can act as an  immediate safety net, while income protection provides longer-term security if you’re unable to work for an extended period.

Ultimately, it can be a good idea to discuss your situation with a professional insurance adviser. They can help you balance cost, risk and coverage to ensure you have adequate cover and that there are no insurance gaps.

Get a quote for Personal Accident and Illness insurance

BizCover offers a range of business insurance options as well as Personal Accident and Illness insurance cover. Get a fast, free and easy online quote today.