Income Protection Versus Workers Compensation

Individuals have often questioned the validity of having income protection insurance, especially if their employer provides Workers Compensation cover.

There have been numerous occasions where debate has existed in respect of benefits provided to employees through Workers Compensation cover. There are some who believe that the cover provided by Workers Compensation will be sufficient. This view may well be misguided in light of the benefits available to employees around Australia . Let’s examine the situation around Australia.

The biggest issue with Workers Compensation is that there is no consistency between the states. Benefit amounts and benefit periods vary considerably depending upon the state the work related injury occurs in. Workers compensation will normally provide four types of benefits for an employee incurring a work related injury: income replacement, permanent impairment, death benefits and medical expenses. In some instances, a worker may receive all four benefits, depending on their circumstances.

Weekly Benefits

Depending upon the state the benefit varies from $602.35 per week (Tasmania) to $1,722.60 per week (Western Australia). These benefits may be paid from 13 weeks to 9 years, depending upon the state, but are normally subject to the maximum limits under the lump sum (impairment) benefit. Lump sum (impairment) benefit Depending upon the state the benefit varies from $118,903 (Australian Capital Territory) to $230,983 (South Australia). Lump sum benefits are paid after specific medical evidence is presented to a tribunal which decides the amount due based on the level of impairment incurred and it is in addition to the weekly benefits. Under some legislation, weekly benefits previously received will be deducted from the lump sum awarded.

Death Benefits

Depending upon the state the benefit varies from $178,354 (Australian Capital Territory) to $374,625 (Queensland).

Medical Expenses

In most states, Workers Compensation covers all reasonable medical surgical and hospital care for work related injuries. It should be noted that in Western Australia , these benefits are capped at $48,813.

The most significant concern for anyone who relies solely on Workers Compensation to protect their income, is what happens in the case of illness or an injury that occurs away from work? Simply, the employee is not covered by Workers Compensation. The risk to the individual is significant, especially considering only 25% of injuries occur at work, while 27% of all injuries occur while a person is undertaking a leisure activity, 11% while playing sports, and the remaining 37% occurred around the home. Although almost 700,000 people sustain work related injuries each year, only 216,000 received Workers Compensation benefits.1

Illnesses and Chronic Disability

There are currently 4 million people with a disability and 1.2 million people with a severe disability, which may include conditions such as cancer, depression, stroke, diabetes, asthma, or back problems (just to name a few). In most cases, these conditions would not be covered by Workers Compensation.

Income protection insurance provides cover for individuals, 24 hours a day, anywhere in the world, regardless of impairment. If a person is either sick or injured, and is unable to work, then the income protection benefits are available for the individual. The other great thing about income protection cover is that it can provide benefits in excess of AWOTE, which is normally the limit for most Workers Compensation payments. The limitations with income protection is that it normally replaces 75% of pre-disability income, and there is normally a waiting period of 14 days to 90 days depending upon the options selected. Unlike Workers Compensation benefits, income protection benefits do not have a maximum benefit payment, and benefits normally continue through to age 65 (rather than being limited to a maximum of 4 to 9 years).

When examining the lifespan of the average worker earning approx $50,000 per annum (Australian Bureau of Statistics Average Weekly Earnings) and working to age 65, there is a potential of $2,000,000 of earnings over 40 years.

When discussing the cover provided by Workers Compensation it is vital that advisers consider all the benefits of protecting their client’s most important asset – their income earning capability. For more information around the types of insurance cover it is best to talk to an xLife specialist adviser.

Source: 1. ABS, 2003 "Work Related Injuries", CommInsure 208

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