2nd November, 2016

What will work for you – Workers Comp or Income Protection?

Accidents happen every day!!

What would you do if that accident happened to you and how can you cover yourself?

Do you need workers comp or income protection?  Or both?

More injuries are sustained at home (37%) or during periods of leisure (27%) than in the workplace (25%) with sporting injuries making up 11% of total injuries suffered by Australians.1

I’ve been in the insurance industry for almost 25 years and one of the questions I am often asked is what’s better Income Protection or Workers Compensation?

The answer is not really straight forward because there are a lot of variables, both income protection and workers compensation have pros and cons, and in some instances it might be best to have both.

Worker compensation will cover you for income replacement, medical expenses, total disability and has a limited death benefit if the accident happens at work and at work only.

So if you are one of the unfortunate 75% of people that has an accident at home, at leisure or doing sport, your worker compensation would not be of any help.

This table is a brief overview of some of the questions asked about Worker compensation verses Income Protection

Workers Compensation verses Income Protection, Workers Compensation has different benefit amounts and laws in each state, but let’s have a look at the key differences between the two types of cover.

Workers Compensation Income Protection
Who’s eligible?
  • Employees – Workers Compensation is compulsory
  • Sole Traders and Partnerships – Workers Compensation does not generally apply
  • Working Directors – Workers Compensation is available but may not be suitable
Will cover most people and occupations
What is it for? Compulsory insurance designed to protect employers from employee workplace related claims Protects your most important asset – your income. It can replace up to 75% of your income which will allow you pay your bills and other day-to-day expenses.
What cover is provided? Covers employees for work related injuries or illnesses. Depending on your state the trip to and from work could be excluded. Provides cover 24 hours a day, 365 days a year, anywhere in the world.
How does it work? Can only be used if your injury or illness happens at work. There are generally four types of payments if injured at work:

  • Income replacement
  • Permanent impairment
  • Death benefits
  • Medical expenses.
  • If you are sick or injured and unable to work, Income protection will cover up to 75% of your provable pre-disability earnings.
  • Will continue to pay you to the end of the selected benefit period if you are permanently disabled.
  • A death benefit between 3 and 6 time your monthly benefit is payable if you die while on claim.
Is there a waiting period? Cover commence immediately from when the incapacity for work begins There are waiting period options, of 14, 30, 60, 90 or 365 days you can however get an optional day 1 cover.
How long will it pay for? There is generally a cap on the benefit period of 130 weeks unless the employee is totally disabled, or if partially fit to work – you are working at least 15 hours per week. Benefit periods can be 1, 2, 5 years or to age 70 depending on your occupation.
What benefit are payable?  Payments generally vary depending on length of time on claim and whether you are totally unfit to work or meet partial incapacity. Generally the amount reduces after 13 weeks on claim. The different states have methods of calculating the weekly payments, each act has a cap on the maximum amount of total benefit payable Up to 75% of your pre-disability earnings. With a maximum monthly benefit of $60,000, if you are seriously ill or injured and can never work again Income Protection will pay to the end of the benefit period.
Can it be changed once taken out? Changes to legislation have impacted and will continue to change employees cover No it is Guaranteed Renewable
 What will it cost?  No cost to employees Premiums will vary depending on age and occupation and are tax deductible

If you would like some more data and statistics please see https://www.google.com.au/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=workers+comp+injury+statistics

1 ABS, 2003 ‘Work related injuries’

Let’s look at some examples of how Workers Compensation and Income Protection can interact and how Income Protection can provide vital coverage in areas where Workers Compensation may not.

  1. a) Fred, an office manager, aged 47, had a heart attack driving to work that also caused a motor vehicle accident. He had 8 weeks off work and had $25,000 in medical costs. Because he was driving to work at the time, he thought he was covered by Workers Compensation and when he had recovered, contacted his employer to make a claim. He was informed that as the medical event was not considered a ‘workplace injury’ nor was his sickness caused by his workplace and no amount was payable.
  1. b) Now let’s say Fred is a plumber, aged 26, suffered a workplace injury that paralysed him. Fred had an Income Protection policy with benefits payable until age 65 and was covered under Workers Compensation. Workers Compensation paid him his full salary for 13 weeks and as he was permanently impaired he was also paid an additional lump sum of $178,000. Fred had $53,000 in medical costs and required mobility aids and renovations to his home to accommodate his disability which used the majority of his Workers Compensation lump sum payment. Fred contacted his Income Protection insurer and was deemed permanently disabled, with 75% of his full income being paid to him until he turned 65.

Although Workers Compensation paid some benefits to him, if Fred did not have his Income Protection policyat the conclusion of the Workers Compensation claim, he would have been left with no source of income and no way of getting an income. Also in this case, if he was a contractor, it is possible that he would not have been eligible for any Workers Compensation payments so if he didn’t have Income Protection his family would be in the shit. (or we could say “his family’s financial stability would be severely compromised)

Chris EarleChris Earle Life Insurance Advisor

Chris joined Bruce Life in 2013 and brings extensive experience in the life insurance and wealth management industry. Chris began his career in South Africa before emmigrating to Australia in 2000 where he held senior roles with the Commonwealth Bank and National Australia Bank.

Chris has worked in the life insurance industry since 1992 and specialises in providing life and income protection advice he also has experience in continuation and succession planning strategies for SME business.

Chris Earle is an Authorised Representative of NEO Financial Solutions AR Number – 338 882

Author: Murray Bruce