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Personal Accident Insurance vs. Income Protection Insurance – Which Do I Need?

income protection insurance

Taking out insurance cover is one of those ‘adult things’ which many of us put on the backburner. Unless you have been involved in an accident or suffered a serious illness which has left you unable to work, it’s hard to understand just how vital the right cover is.

It’s an initial expense that can be difficult to justify – that is, until you’re hit with an emergency and can no longer work, pay your bills or help provide for your family. Life is fraught with risks. Some are bigger than others, threatening our well-being, way of life and our health. But with the right insurance, you can protect what matters most to you and save yourself – and your family – from financial hardship if the unexpected happens.

With the broad array of insurance types on the market though, it can be challenging to find the right one for you to invest in.  And how many ‘types’ do you really need?

Personal Accident Insurance (PAI) and Income Protection Insurance are two common covers to consider. Both can be extremely beneficial and prove a valuable investment, however with key differences between them, it is important to seek expert advice to ensure you purchase the right policy for your needs and are fully protected.

The Key Differences

The primary difference between PAI and Income Protection Insurance is that PAI policies can be cancelled by the insurer. For example, if you have made insurance claims; changed jobs or altered your lifestyle; or experienced a decline in your health, the insurer may reject your policy renewal.

Income Protection Insurance policies, on the other hand, cannot be declined for renewal by the insurer. So long as you continue to pay your premium, the insurance company legally cannot cancel your policy, increase your premium rates (above standard CPI) or adjust your policy should you change your occupation or lifestyle; suffer a health decline; or make multiple insurance claims.

While Income Protection Insurance is often considered the more superior of the two, providing better long-term security, Personal Accident (& Sickness) Insurance can often be sufficient, depending on the individual’s situation and requirements.

Personal Accident Insurance

Personal Accident (& Sickness) Insurance protects you financially in the event of serious injury, illness or death caused by an accident either in or outside the workplace. PAI is beneficial because it coves a portion – usually up to 85% – of your lost income, as well as expenses such as medical bills and rehabilitation programmes.

It will provide a monthly pay-out until you are able to return to work. Should you be unable to ever return to work, the PAI insurer will continue to make regular payments to you according to the terms of the policy.

An important point to note about PAI is that any pre-existing conditions are usually excluded from your cover. Also, for PAI payouts, it must be proven that the injuries sustained were directly caused by an accident; you cannot make a claim for a degenerative condition or the gradual onset of a condition.

The benefit period offered by a Personal Accident Insurance policy is usually 2 years. The policy tends to be an ‘indemnity’ style contract, meaning that the monthly payout is based on your (provable) income for the 12-month period prior to the claim was made.

PAI policies will usually cover you for 24 hours per day, 365 days per year and will cover you worldwide.

However, this type of insurance is very specific in what it will cover and what it won’t, so it pays to examine the fine print and understand the finer details to ensure it’s right for you.

Income Protection Insurance

Income Protection Insurance insures you against loss of earnings through illness, injury.

An Income protection policy will generally cover up to 75% of your pre-tax income for the period specified in your policy. The pay-out periods for Income Protection policies range from 2 years through to 70 years of age, depending on your occupation and the terms of your policy.

Unlike PAI Insurance, Income Protection Insurance will cover you for the gradual onset of a condition, as well as degenerative conditions, providing the condition started after the purchase of the policy, or it was an existing condition which was disclosed – and accepted – by the insurer when the policy was first taken out.

Income Protection Insurance can be offered either as an ‘indemnity’ style contract, based on your highest annual income in the 3 years prior to the claim is made; or it can be an ‘agreed value’ contract whereby your income can be proven up-front and the insurer will not review the monthly pay-out detailed on policy agreement when a claim is made.

As with PAI, Income Protection will usually cover you worldwide 24/7.


There are a number of standard exclusions which generally apply to both Personal Accident Insurance and Income Protection Insurance policies. Any injury or illness sustained as a result of the following will usually be excluded from your policy:

  • Self-harm or attempted suicide
  • Influence or misuse of alcohol and drugs
  • Participation in illegal activity

However, PAI policies generally have a far broader range of exclusions than Income Protection policies as they are not underwritten upfront. These can include subsequent injury or illness from any of the following:

  • Pre-existing conditions
  • Any accident or injury caused by a pre-existing condition
  • Participation in a professional sport
  • Participation in adventure sports or high-risk activities (such as sky-diving)

Which Insurance Type do I Need?

The most suitable insurance cover for you will depend on your personal circumstance. With so many different policies available, it can be hard to decipher which insurance type – and which policy – best fits your needs. It is vital, therefore, that you do your homework or speak to an insurance expert to ensure that you are fully protected.

Protecting your income and immediate family can save a lot of heartache and stress in the event of an accident, illness or death. Be smart about your way of life, health and financial commitments! The right insurance cover should be seen as an investment, not as an unnecessary expense.



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