When it comes to buying insurance, there’s plenty to consider. How much am I willing to spend on the policy I’m looking to buy? Is the policy worth it? Am I already covered for the same thing by another policy?
The latter question is often asked of two common policies: life insurance and private health insurance. They may sound like they cover similar things, but in reality, the two are very different. It’s worth finding out how before jumping into the policy purchase process.
Life insurance vs health insurance: at a glance
First, let’s take a quick look at the main points of difference between the two:
| Life insurance | Private health insurance | |
|---|---|---|
| Its purpose | To provide you and your family with financial coverage in the event of your death or serious illness/injury that prevents you from working. | To cover part or all of the cost of medical treatments in a private hospital or those otherwise not covered by Medicare. |
| Benefit | Lump sum payment to you or your family or an ongoing benefit while you’re unable to work (income protection). | Partial or full reduction in the cost of covered treatments. |
| Cost of premiums | Based on factors specific to you, such as your age, gender, health, occupation, family medical history and whether you smoke. | Based on the level of hospital or extras cover you choose to take out. |
| How to claim benefit | Submit a claim to your insurer. | Either submit a claim to your insurer or have claims paid on the spot and reimbursed through your private health card and HICAPS machine. |
| Excess | None required. | Payable on some claims. |
| Length of coverage | Up to ten to 30 years between renewals, with coverage ceasing once you hit a certain age. | Renewals occur each year, with no maximum age applicable for private health insurance. |
| Whether it's mandatory | No, life insurance is optional. | No, private health insurance is optional. However, if you don’t have hospital cover, you may have to pay the Medicare levy surcharge. |
What is life insurance and how does it work?
Life insurance is a type of policy that can offer you coverage in the form of a lump sum payout (or ongoing benefit in some cases) if you make a successful claim. The amount of coverage you need will depend on your individual circumstances and those of your family.
The specific incidents covered by your life insurance policy can vary depending on the type of cover you take out, with four main options available under this category of insurance. These include:
- Life cover: pays out a lump sum benefit in the event of your death or terminal illness diagnosis. This benefit usually ranges from $100,000 up to as much as $5 million.
- Income protection insurance: can pay you an ongoing benefit worth up to 90% of your monthly income in the first six months (and 70% thereafter) if you’re unable to return to work due to an injury or illness. Income protection insurance policies come with waiting periods of between two weeks and two years before you’re able to start receiving payments, after which you can be paid for up to two to five years or until you reach a certain age (usually 65).
- Total and permanent disability (TPD) insurance: can pay out a lump sum benefit worth up to $5 million if you’re permanently disabled due to injury or illness and either unable to return to your previous job (Own Occupation) or any work at all relevant to your education, training and experience (Any Occupation).
- Trauma insurance: can pay out a lump sum worth up to $2 million if you suffer a critical illness or serious injury. Trauma insurance can include cover for conditions such as strokes, cancer or significant head injuries.
What are the differences between life insurance and health insurance?
Private health insurance offers protection against having to fork out for steep medical fees, whether that’s in hospital or with another type of medical practitioner. There are two types of private health insurance: hospital cover and extras cover.
Hospital cover
As the name suggests, hospital cover helps you pay for treatment in a private hospital as a private patient. The amount of coverage and number of covered events under your policy depend largely on the level of hospital insurance you take out. There are four tiers of coverage:
- Basic cover: the only mandatory clinical categories in basic cover are rehabilitation, hospital psychiatric services and palliative care, all of which are restricted.
- Bronze cover: adds 18 further categories, including eyes (not cataracts), ear, nose and throat, skin, gynaecology, joint reconstructions and chemotherapy.
- Silver cover: nine categories are added on top of bronze’s cover, including heart and vascular system, flood, back, neck and spine, dental surgery and lung and chest.
- Gold cover: another nine categories are included in addition to silver’s coverage, including cataracts, joint replacements, pregnancy and birth, weight loss surgery and sleep studies.
Waiting periods of two months apply to all categories except for treatments relating to pregnancy, birth-related services or pre-existing conditions, which come with a 12-month waiting period.
Extras cover
Extras cover is designed to cover treatment costs outside a hospital environment that aren’t covered by Medicare. It isn’t quite as structured as hospital insurance, but insurers will usually offer different levels of cover for their extras insurance. Some of the treatments that can be covered include:
- Optical (contact lenses and glasses)
- Physiotherapy
- General dental (check-ups and more simple dental procedures) and major dental (teeth removal, root canals, dentures and sometimes cosmetic procedures)
- Orthodontics (braces and aligners)
- Remedial massage
- Non-PBS medications (those not listed under the PBS)
- Psychology and other mental health treatments
- Podiatry
Life insurance vs health insurance: monthly cost
Insurance is right near the top when it comes to essential household expenditure, with a 2023 CommBank iQ report revealing that the $225 Aussies spend on their various policies is lower than only food. That means families are paying more for insurance than they are for their utilities, school fees and cars.
In terms of the two types of insurance we’re focusing on, life insurance is much cheaper than health insurance. You can see the difference in monthly premiums in the table below:
| Level of cover (Life benefit/Hospital and extras cover) | Life insurance | Health insurance |
|---|---|---|
| Minimum cover ($100,000/Basic) | From $3.39 to $14.07 | From $110.89 to $230.71 |
| Mid-tier cover ($500,000/Bronze) | From $14.06 to $30.61 | From $123.99 to $247.65 |
| Higher cover ($1 million/Silver) | From $25.10 to $46.22 | From $160.00 to $348.09 |
| Maximum cover ($2 million/Gold) | From $49.84 to $82.93 | From $334.68 to $444.45 |
| Life insurance quotes based on a 35-year-old man living in NSW who is a non-smoker and works in a professional role. Hospital and extras insurance quotes based on a 35-year-old man living in Sydney (2000) who currently holds a private health insurance policy and earns $101,000 or less. Quotes obtained through Compare Club on 4 February 2026. | ||
As mentioned, the cost of life insurance is based on factors specific to you and your health, such as:
- Your age
- Your gender
- Your employment
- Your pre-existing health conditions (if any)
- Your family history of illness or disease
- Whether you smoke
- The size of your sum insured
On the other hand, the cost of private health insurance isn’t impacted by anything to do with your health or gender. It’s purely related to the level of cover you choose to take out.
Life insurance vs health insurance: who needs them?
Whether life insurance or private health insurance is suitable for you comes down to your needs and personal situation. Let’s look at a few scenarios where you might look to take out a life insurance policy:
- You’re the main breadwinner of your family and your partner or spouse would face financial hardship if you passed away or were rendered unable to work
- You’re paying off a mortgage and would be unable to complete loan payments without your regular income
- You want to leave a lump sum for your spouse, children or other family members after you pass away
Private health insurance is more commonly sought after and typically required for a larger number of people. Some situations where it’d come in handy include:
- You want to be treated as a private patient and have the choice of public or private hospitals if treatment is necessary, bypassing the public patient system
- You want to be covered for treatments and medications not included in Medicare’s coverage
- You want to avoid having to pay potentially steep medical fees for treatments both within and outside of hospital
- You don’t want to pay the Medicare levy surcharge
