Work Cover vs Income Protection

Why do I need to have income protection when I have work cover?

This is a common view held by many workers in Australia – that they do not need a personal income protection policy as they are covered by work cover or workers compensation.

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While the two types of cover are similar, they are also very different:

Income Protection

A type of personal insurance, it can protect up to 75% of your income if you are unable to work due to a sickness or accident. It covers you both at work and outside of work as well as for both total and partial disablement.

Work Cover

Also known as workers compensation, it is compulsory for most business owners in Australia to have as part of their business. It provides financial compensation to employees if they become sick or injured as a result of their work or travelling to or from work.

The most important difference is:
Personal Income Protection covers you during and outside of work, whereas work cover only covers you during work.

Income Protection and Workcover Snapshot

Income ProtectionWorkcover
Cover for injuries and illness sustained at workYesYes
Cover for injuries and illness sustained outside of workYesNo
Maximum monthly benefit$60,000$7996.80
Death BenefitGenerally pays out 4-6 times your monthly benefit up to a maximum of $75,000 however you can take out a separate life insurance policy.Up to a maximum of $524,000
Covers rehabilitation expensesYesYes
Cover for spouse accommodation expensesYesNo
Cover for elective surgeryYesNo

Income Protection

Income Protection Insurance is an insurance type which protects your income if you are unable to work due to a sickness or accident. It generally covers you 24/7 worldwide and you do not need to be working or travelling to work in order to be covered.

It is generally a fully customisable policy, allowing you to change and alter the policy to suit your specific circumstances.

Benefits of Income protection

Covers up to 75% of your salary

The maximum amount you can cover is generally 75% of your salary, however you may be able to take out an additional 5 – 10% to cover superannuation payments or mortgage repayments.

Cover for both sickness and accidents

If you are unable to work due to a sickness or an accident, you can generally receive a benefit. Some policies also offer accident only cover if you are unable to take out a full income protection policy.

24/7 worldwide cover

Income Protection protects you anywhere in the world, 24 hours a day, 7 days a week. Some policies even have built in features which help to reimburse travel costs if you become sick or injured overseas and become totally or partially disabled and need to return home.

Flexible benefit periods

You can elect to choose how long you want to get paid for should you go on a claim. Some insurers offers benefit periods to Age 65 or Age 70.

Flexible waiting periods

You will generally have a choice of waiting period – that is the period of time you will be required to wait following an injury or illness before you will start receiving a benefit.

Tax deductible premiums

Income Protection premiums are generally tax deductible, allowing you to take out cover and save at the same time. The amount of the deduction will depend on how much you earn and how much tax you pay.

Built-in features

Specified Injury Benefit

Pays a monthly benefit for a set period of time if you suffer from a specific injury.

Rehabilitation Benefit:

Helps pay for rehabilitation expenses to help get you back to work.

Inflation Protection:

Makes sure your policy keeps up to date with inflation

Accommodation Benefit

Covers accommodation expenses for a family member if they are required to be with you and you are away from your home.

Workcover

Workcover is an insurance policy/scheme designed to protect employees if they suffer an accident or become sick as a result of their job or if they are travelling to and from their job.

Also known as workers compensation insurance, it is generally compulsory for any business in Australia to have cover if the business pays more than $7,500 in remuneration per year or pays less than $7,500 in remuneration per year but has trainees or apprentices working in the business.

Payments from workers compensation can cover:

The amount you can receive from a weekly wage replacement benefit will differ between states however it could range from $500.00/week – $1999.20/week.
Other people who can receive weekly payments include:

  • Children: $45.00 – $133.10 per week
  • Dependents – $62.00 – $76.60 per week
  • Dependent relative: $25.65 – $32.50
  • Spouse: $89.10 – $247.50

If you suffer a permanent impairment you may be able to receive a lump sum payment in addition to the weekly payments and cover of hospital and rehabilitation costs.

In order to claim for permanent impairment, you must have an impairment of at least 10%.

Medical, hospital and rehabilitation expenses may be covered depending on the injury. The following costs may be covered:

  • Medical and treatment costs
  • Hospital treatment
  • Ambulance cost
  • Workplace rehabilitation services
  • Damage to artificial aids
  • Damage to clothing
  • Car travel expenses to attend appointments

Reasonable funeral expenses may be paid following the death of worker. These may include:

  • Funeral director fee
  • Cost of funeral service
  • Coffin
  • Mourning car
  • Cemetery site
  • Flowers
  • Newspaper notice
  • Death certificate

The maximum payment for funeral expenses may only be as high as $9,000.

The maximum payment for death may only be as high as $524,000.

The Disadvantage of just relying on work cover:

  • Only covered for injuries or illnesses sustained at work
  • Not covered if injury is the result of your negligence
  • Weekly payment benefits can expire and be limited
  • Lump sum benefits for death or permanent impairment can be limited

What are the different workers compensation schemes in Australia?

In Australia, workers compensation is run by a different organisation in each state:

Victoria WorkSafe

Western Australia WorkCover

South Australia WorkSafe

Tasmania Workplace Standards

ACT Work Safety Commission

NSW WorkCover

Northern Territory WorkSafe

Queensland WorkCover

ComCare

SafeWork Australia

Workers Compensation Insurance for the self employed

If you are self employed as a sole trader, you are generally unable to take out workers compensation insurance. However if you own your own business and it is incorporated, then you are legally required to take out workers compensation.

While there are no legal requirements to have a personal income protection policy as a sole trader, income protection may be a suitable alternative.
See our Insurance for Small Business Guide for more information.

Frequently asked questions

If I take out an income protection policy, am I still covered by Workers Compensation?

If you work for an employer who is required to have workers compensation insurance then yes you are still covered by work cover even if you have income protection.

Can I receive an income protection benefit and a workers compensation benefit?

The most you can ever receive from an income protection policy is generally 75% of your salary. If you do receive a workers compensation benefit, this will offset any benefits paid out to you by your income protection policy so you don’t receive more than 75% of your salary.

Do I need Life Insurance if I am covered by workers compensation?

While workers compensation may pay out a death benefit and cover funeral expenses, the amounts paid out are quite limited. Also, your family may only receive a payment if death occurs in the work place.

A life insurance policy can be customised to suit your needs and circumstances and most of the policies we compare have no limit on the amount of life insurance available.

Published: September 17, 2015
  • Business Expenses Insurance

    Designed for the self employed, business expenses insurance covers your fixed business costs for up to 12 months if you suffer an accident or sickness.

  • Income Protection for the Self Employed

    Income Protection for the self employed is very important! Compare multiple policies and add options that suit sole traders or working directors!

  • Day 1 Accident Cover

    Include the Day 1 Accident Cover option and be eligible to receive a partial benefit almost immediately during the waiting period!

  • Small Business Insurance Guide

    Protect your small business and your family by taking out income protection, business expenses and keyperson insurance cover!

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4 Comments

  • Cj Dibden |

    Why is income protection insurance limited to 75% of salary and are the premiums based on this 75% or the 100%?? thank you

    • Russell SPECIALIST
      Russell |

      Hi Cj, the limits on income protection are generally 75% as the insurers want to try to motivate you to go back to work. If they paid 100% of your salary you would never want to return to work as you would be getting the same income for doing nothing. For the second part of your question your premium is actually determined on the actual monthly benefit you are insured for not you full salary. Therefore you could elect a maximum monthly benefit of 75% of your salary or you could choose a lower monthly benefit for example, then your premium would be lower as the sum insured is reduced all other premium factors staying the same.

  • Kraj |

    Hi I get worker comp of $1023-tax =832 p/w as my pay was $1600 p/w with $250 been car allowance. Now they don’t pay this as I am not working. I have income protection with my super fund of max at $5000 /month but as yet didn’t receive any money from them. I had my accident while at work, should super pay me something to offset the workers comp payment thx

    • Russell SPECIALIST
      Russell |

      Hi Kraj

      As I am not aware of your PDS for the policy you are trying to claim on I wont be able to talk specifically about your policy however here is some general principles that may help you.

      Generally income protection covers you for 75% of your “Personal exertion income” which can include wages, superannuation payments, allowances ext (if you are self employed less any direct business expenses). Secondly you need to understand the polices “Pre disablement income” definition. This is how they calculate / you prove your “Personal exertion income” for the period prior to disablement (sickness or the accident). If the policy is an indemnity policy they will generally pay the lessor of 75% of your pre disablement income or your monthly benefit on your latest renewal notice prior to claim.

      This will depend on the policy however generally speaking if the injury happened at work and you are receiving a benefit from workers comp for the injury that is less than the monthly benefit. Then the income protection policy will generally pay a benefit equal to 75% of the difference between the two.

      I hope this helps answer your question.

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