Is Income Protection the Same as Long Term Care Insurance?

There are literally dozens and dozens of different types of insurance ... and that's just insurance for ordinary citizens! Many of them seem quite similar to each other, at first inspection ... but as is the case with income protection insurance and long term care insurance, getting them confused could have quite an impact on your life. Today we look at the differences between income protection insurance and long term care insurance.

What's income protection insurance?
When you take out an income protection policy:

The insured event is: An injury or illness that leaves you unable to work
The benefit is based on: A percentage of what you would have earned in the time you were unable to work.
Conditions include: The injury or illness must occur while insured. There are also other important conditions, which are policy specific.

What's long term care insurance?
When you take out a long term care insurance policy:

The insured event is: You being injured or ill to the extent that you need help with performing basic daily functions.
The benefit is based on: The cost of the long term care.
Conditions include: There is no age limit as there is with income protection insurance. Other important conditions are policy specific.

Long term care insurance is mostly a US phenomenon, and people often run across it when searching for information about insurance on the internet. In Australia, there is often a long-term care component built into other types of insurance policies. For example:

• Life insurance policies often have a Total and Permanent Disability option in them
• You can use your income protection insurance policy to pay for carer's costs (though benefits are only paid to age 65, and you should remember that you're only getting a maximum of 75% of your regular income)
• Trauma insurance policies may have 'loss of capacity for independent living' as one of their standard trauma events, or have a Total and Permanent Disability option (defined either for your own occupation or any occupation)

Should I have both income protection and long term care insurance?
The coverage for income protection and long term care policies does overlap in some ways. If you made a claim on your income protection insurance policy, for example, you could use the 75% of your ordinary income to pay for the costs of a carer.

However, since many people of working age have spouses, parents or children capable of looking after them, they see little point in getting long term care insurance.

The dilemma of whether to insure, and potentially protect yourself from a disaster later on, or not to insure, and have more cash free for enjoying your life in the present, exists for every type of insurance. Most families examining whether to get income protection or long term care insurance (or both), will find that the cost/potential benefit ratio is higher for income protection than for long term care.

Income protection insurance