Frugal Insurance

What’s the difference between Health Insurance, Income Protection and Trauma Insurance?

We speak to a lot of people about insurance and they often don’t understand the difference between health insurance, income protection and trauma insurance.

One of the biggest reasons people often get confused is that while all of these insurances relate to a person’s health, they have a wide range of benefits which are often perceived as being similar, when in fact they are very different.

Benefits provided by Health Insurance, Income Protection and Trauma Insurance

Health Insurance

financial adviserHealth insurance provides a range of benefits, based on the level of cover you have. One of the biggest reasons for choosing health insurance is to avoid paying the Medicare Levy.

If you have a Comprehensive level of Health Insurance you may have an Extras package, which will provide you with additional benefits such as dental, optical, chiropractic.

Generally, the level of cover you hold determines a gap amount or a rebate amount. For example, you may receive a 55% rebate on regular dental check-ups. This rebate usually comes with an annual rebate amount – i.e you may be limited to claiming up to $500 pa on dental.

Effectively, Health Insurance relates to the expenses of health care.

Income Protection

Where Health insurance covers health care expenses, Income Protection covers your lost salary if you are sick or ill.

In fact, Income Protection simply provides you with a monthly cash amount, based on the level of cover you have taken out. So, if you are unable to work, because you are sick or ill, you will be paid the monthly benefit until you can return to work.

There is no mandate that states what you must spend your income protection benefit on. It could be medical expenses, it could be on food or the mortgage – it is entirely up to you.


Similarly, to income protection, trauma is a cash payment, that can be used for anything you wish. However, trauma is a lump sum payment that is generally reserved for critical illnesses, such as cancer, heart attack and stroke.

Trauma insurance works in conjunction with Health insurance to ensure you are not left out of pocket, when you are diagnosed with a major illness. While Health insurance may cover a lot of medical expenses, there are often limits or gaps, that can mean you are still required to pay for medical costs – not something you want to worry about when deciding to get lifesaving surgery!

Why should I have these insurances, if they are so similar?

While each of the insurances do have similar circumstances under which to claim, the benefits provided by each of these insurances varies widely;

  • Health Insurance: Covers medical expenses
  • Income Protection: Covers lost salary
  • Trauma insurance: Cover major illnesses & health insurance shortfalls

Rather than thinking of these as the same thing, it is best to think about them as complimentary policies that provide a total insurance health plan.

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