The four kinds of life insurance, set out plainly

“Life insurance” in Australia is really a family of four covers: life cover, total and permanent disability (TPD) cover, trauma cover and income protection. Each pays for a different event and in a different way, so the first question to ask of any policy is which of the four it is, or which of them it bundles together.

The four covers as ASIC’s Moneysmart describes them. Read 7 October 2026.
Item	Cover	Pays when	How it pays	Also called
1	Life cover	You die; it may also come with terminal illness cover	A lump sum	Term life insurance, death cover
2	TPD	Illness or injury leaves you permanently unable to work, as the policy defines it	A lump sum	Total and permanent disability
3	Trauma	You suffer a critical illness or serious injury the policy lists	A lump sum	Critical illness, recovery insurance
4	Income protection	Illness or injury stops you working	Part of your income, paid regularly	Salary continuance cover, inside super

1 Life cover

Life cover pays a lump sum when you die. The people who rely on your income can use it to pay the mortgage, clear debts and meet everyday costs, which, in Moneysmart’s words, gives them “time and space to adjust”. Life cover may also come with terminal illness cover, which pays a lump sum if you are diagnosed with a terminal illness and have a limited life expectancy.

Moneysmart says life cover can help when a partner, children or other family members depend on your income, or when you carry large debts or a mortgage. If nobody depends on you financially, it says you may not need life cover, though it suggests thinking about the other three covers in case you become sick or injured.

If no beneficiary is named, Moneysmart says your estate decides, or the super trustee if the cover is held through your super fund. Moneysmart explains nominations on its page about who gets your super if you die.

2 Total and permanent disability cover

TPD cover pays a lump sum if an illness or injury leaves you totally and permanently disabled. Moneysmart lists what the money can help with: living costs, medical care, changes to a home and one-off expenses. Everything turns on the policy’s definition of “totally and permanently disabled”, and each insurer has its own. Moneysmart describes three kinds of definition.

TPD definitions, from Moneysmart’s TPD page. The policy’s own wording is what counts.
Definition	You must be unable to	Moneysmart’s note
Own occupation	Work again in the job you did before the disability	More expensive, and usually only available outside super
Any occupation	Ever work again in any job suited to your education, training or experience	Cheaper, but a higher threshold to claim, so less likely to pay out
Activities of daily living	Do basic self-care tasks such as bathing, feeding, dressing, toileting and moving about without help	The highest threshold to claim

Moneysmart adds a tax point, in a passage about default insurance through super: “any TPD payout might also be taxed at up to 22% if you’re under age 60. So the payout you receive may not match the amount of insurance cover you think you have.”

3 Trauma cover

Trauma cover pays a lump sum if you suffer a critical illness or serious injury, such as cancer, a heart condition, a major head injury or a stroke. Moneysmart says it does not cover mental health conditions, and that the conditions covered and their medical definitions differ between insurers. Moneysmart’s examples of what it can help pay for are out-of-pocket medical costs, living expenses while you can’t work, therapy, nursing care, transport, changes to housing and paying down debt.

Trauma cover is bought from an insurer, directly or through an adviser or broker. Super funds no longer offer new trauma policies, although someone who was in a fund that offered trauma cover before July 2014 might still have it.

4 Income protection

Income protection is the cover built to pay like a wage. If illness or injury stops you working, it usually replaces a percentage of your pre-tax income (Moneysmart gives 75% or 90% as examples), based on what you earned in the 12 months before. Three features shape any policy:

Waiting period. How long you wait before payments start. Moneysmart says most policies offer between 14 days and two years, and you must still be unable to work at the end of it.
Benefit period. How long payments last if you stay unable to work: most often two or five years, or up to a set age such as 65.
Minimum hours. Some policies cover you only if you work a minimum number of hours a week (Moneysmart’s example is 15).

The tax treatment differs from the other three covers. The ATO says premiums you pay to protect your salary and wages are deductible, but not where the policy is held through super and the premiums come out of your contributions, and not for the part of a policy that pays you a capital sum to compensate you for injury, or for life, trauma or critical care premiums. Payments that replace your salary must be included in your tax return.

When covers come bundled

Life cover can be bought on its own or packaged with TPD, trauma or income protection. Moneysmart’s caution is that in a package, a payment on one claim can reduce what is left: your life cover may be reduced by any amount paid on the other claims. The product disclosure statement says whether that applies.

Before choosing any of them

Moneysmart says an insurer is legally required to give you a product disclosure statement (PDS) before you buy life insurance, and suggests checking it for these things:

What the policy covers, and what it excludes
What information you will need to give the insurer
Premiums, and how they change over time
Waiting periods before you can make a claim
How to make a claim
How to complain about the claims process or a decision

It also suggests checking whether you already hold cover through your super, so you are not paying for the same insurance twice. Default cover in super is set out on its own page: life insurance inside your super.

Sources for this page, read 7 October 2026