Insurance can feel confusing, especially when the names all sound similar. But each type of cover plays a different role in protecting you and your family if something unexpected happens. Here’s a simple guide to four common types of personal insurance in Australia: life insurance, income protection, trauma insurance, and total & permanent disablement (TPD) insurance.
Understanding different kinds of life insurance
ARTICLE
5 February 2026
3 min read
3 min read
Life Insurance (death cover)
What it is:
Life insurance pays a lump‑sum amount to your chosen beneficiaries if you pass away or are diagnosed with a terminal illness (with a life expectancy of 12–24 months, depending on the policy).
Life insurance pays a lump‑sum amount to your chosen beneficiaries if you pass away or are diagnosed with a terminal illness (with a life expectancy of 12–24 months, depending on the policy).
What it’s designed for:
To help your family cover major financial commitments after you're gone, for example mortgage payments, school fees, living expenses, or debts.
To help your family cover major financial commitments after you're gone, for example mortgage payments, school fees, living expenses, or debts.
Who it’s suited to:
Anyone with dependants or financial commitments that would be difficult for loved ones to handle alone.
Anyone with dependants or financial commitments that would be difficult for loved ones to handle alone.
Key point:
The benefit is paid once, directly to your beneficiaries or estate.
The benefit is paid once, directly to your beneficiaries or estate.
Income Protection Insurance
What it is:
Also known as Salary Continuance, Income Protection pays you a monthly benefit, usually up to 70% of your regular income, if you’re unable to work due to illness or injury.
Also known as Salary Continuance, Income Protection pays you a monthly benefit, usually up to 70% of your regular income, if you’re unable to work due to illness or injury.
What it’s designed for:
To help you keep up with everyday expenses while you're recovering, such as rent or mortgage payments, groceries, bills, childcare, and more.
To help you keep up with everyday expenses while you're recovering, such as rent or mortgage payments, groceries, bills, childcare, and more.
Key features you choose:
- Waiting period: how long before payments start (e.g., 30, 60 or 90 days)
- Benefit period: maximum period payments may continue (e.g., two years, five years, or to age 65)
Key point:
It replaces ongoing income, not a lump‑sum payout.
It replaces ongoing income, not a lump‑sum payout.
Trauma Insurance (critical illness cover)
What it is:
Trauma insurance pays a lump sum if you're diagnosed with a serious medical condition listed in your policy - typically things like cancer, stroke, heart attack, major head injury, or chronic conditions like multiple sclerosis.
Trauma insurance pays a lump sum if you're diagnosed with a serious medical condition listed in your policy - typically things like cancer, stroke, heart attack, major head injury, or chronic conditions like multiple sclerosis.
What it’s designed for:
To help cover immediate medical and lifestyle costs that come with a major illness, such as:
To help cover immediate medical and lifestyle costs that come with a major illness, such as:
- Out‑of‑pocket medical treatments
- Home modifications
- Taking time off work
- Paying down debts
- Funding a partner to take time off to care for you
Who it’s suited to:
People who want financial breathing room during a major health event, particularly families or those with limited emergency savings.
Key point:
It’s based on a diagnosis or event, not your ability to work.
Total & Permanent Disablement (TPD) Insurance
What it is:
TPD insurance pays a lump sum if you become permanently disabled and are unlikely to ever return to work again.
TPD insurance pays a lump sum if you become permanently disabled and are unlikely to ever return to work again.
There are usually two definitions:
- Own occupation: you can’t return to your usual job
- Any occupation: you can’t return to any job you’re suited to by training or education
What it’s designed for:
To help with long term costs such as:
To help with long term costs such as:
- Medical and rehabilitation expenses
- Long‑term care
- Paying off debts
- Adjusting your home or lifestyle
- Replacing lost future income
Who it’s suited to:
Anyone who relies on their ability to work and wants financial protection if a life‑changing disability occurs.
Anyone who relies on their ability to work and wants financial protection if a life‑changing disability occurs.
Key point:
It’s about permanent incapacity, not temporary illness or injury.
It’s about permanent incapacity, not temporary illness or injury.
How they work together
These insurance types complement each other, not replace one another:
- Life insurance protects your family if you die
- TPD insurance protects you if you can’t work again
- Trauma insurance helps you manage immediate medical or lifestyle costs during a major health crisis
- Income protection helps with ongoing bills while you recover
Many Australians choose a mix that suits their lifestyle, dependants, and financial commitments.
Insurance is ultimately about protecting your financial wellbeing when life takes an unexpected turn. The right combination depends on your income, family situation, debts, and personal preferences. Before you purchase a policy, make sure you read the Product Disclosure Statement so you understand exactly what the policy does – and does not – cover you for.
If you’re unsure what’s right for you, speaking with a financial planner/adviser can be a great place to start.
A financial planner can help assess your insurance needs, research options and recommend an appropriate protection strategy for you.
Disclaimer:
Copyright © 2026 AIA Financial Services Pty Limited (ABN 68 008 540 252, AFSL 231109), trading as AIA Financial Wellbeing. All rights reserved. This information is current at the date of this publication and is subject to change. This provides general information only, without taking into account factors like the objectives, financial situations, needs or personal circumstances of any individual and is not intended to be financial, legal, tax, health, medical, nutritional or other advice. Before acting on the information in this publication, individuals should consider its appropriateness having regard to such factors.
Copyright © 2026 AIA Financial Services Pty Limited (ABN 68 008 540 252, AFSL 231109), trading as AIA Financial Wellbeing. All rights reserved. This information is current at the date of this publication and is subject to change. This provides general information only, without taking into account factors like the objectives, financial situations, needs or personal circumstances of any individual and is not intended to be financial, legal, tax, health, medical, nutritional or other advice. Before acting on the information in this publication, individuals should consider its appropriateness having regard to such factors.
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