Workers Compensation vs Income Protection: What’s the Difference?
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What Is Workers Compensation Insurance?
Workers compensation insurance is a form of insurance that provides payments to employees if they are injured at work or become sick because of their job. It is designed to support workers while they are unable to work by helping replace lost income and covering medical and rehabilitation costs. A workers compensation claim may include payments for wages while the worker is not fit for work, as well as approved medical treatment and recovery services.
Employers in each state and territory are required to take out workers compensation insurance to cover themselves and their employees. The exact benefits, payment limits and claim rules depend on the workers compensation scheme operating in that state or territory. Workers compensation generally only applies when the injury or illness is work-related and does not cover conditions or injuries that occur outside of work.
What Is Income Protection Insurance?
Income protection insurance typically provides a monthly benefit if you are unable to work due to illness or injury. The benefit is usually based on a percentage of your regular income, up to 70%, and is designed to help cover everyday living expenses while you recover. Payments generally begin after a waiting period has passed and continue while you meet the policy’s claim eligibility criteria, or until the maximum benefit period set out in your policy is reached.
Income protection policies are taken out and paid for by individuals, including employees, contractors and self-employed workers. The insurer pays a monthly benefit once your claim is accepted and your waiting period has ended, with payments usually made in arrears. Benefits typically continue until you return to work, no longer meet the claim requirements, reach the end of your benefit period, or your policy expires. The amount paid and how long benefits last depend on the terms of the policy you choose.
Workers Compensation vs Income Protection: Key Differences
While both types of cover are designed to support you financially if you cannot work, the difference between workers compensation and income protection insurance is typically in when each policy offers cover and what situations they cover. Workers compensation insurance only applies when an injury or illness is directly related to your job or workplace, whereas income protection insurance can cover a much wider range of illnesses and injuries, including those that occur outside of work.
Another key difference is how the cover is arranged and who pays for it. Workers compensation insurance is generally taken out by employers and is often compulsory for most businesses, while income protection insurance is a personal policy chosen and paid for by individuals. Workers compensation claims are managed through state or territory schemes and your employer’s insurer, while income protection claims are assessed by the insurer that provides your policy under its own terms and conditions.
Workers Compensation vs Income Protection Insurance
| Feature | Workers Compensation Insurance | Income Protection Insurance |
|---|---|---|
| What it covers | Covers injuries or illnesses that happen because of your job or workplace. | Covers illness or injury that prevents you from working, whether it happens at work or outside of work. |
| Who it applies to | Employees only. | Employees, contractors and self-employed people. |
| Who pays for it | Paid for by the employer as part of their legal obligations. | Paid for by the individual as a personal insurance policy. |
| When you can claim | When an injury or illness is proven to be work-related. | When you are unable to work due to illness or injury and meet the policy conditions. |
| Income replacement | Pays a portion of your wages while you are unfit for work, subject to scheme limits. | Pays a monthly benefit based on a percentage of your income, up to the policy limit. |
| Medical and rehab costs | Usually covers approved medical treatment and rehabilitation related to the work injury or illness. | Focuses mainly on replacing income, not medical expenses. |
| Coverage outside work | Not covered. | Covered, subject to policy terms and exclusions. |
| How long benefits last | Depends on state or territory rules and the type of injury or illness. | Depends on your chosen benefit period, such as two years, five years or up to a certain age. |
| Self-employed workers | Generally not covered. | Can be covered under an income protection policy. |
| Flexibility | Set by legislation and scheme rules. | Can be customised with waiting periods and benefit periods. |
Can You Have Workers Compensation and Income Protection?
It is possible to have both workers compensation and income protection at the same time, as they serve different purposes. Workers compensation provides support when an injury or illness is work-related, while income protection can provide support when you are unable to work due to illness or injury more broadly.
In some situations, you may be eligible to receive payments from both types of cover. However, income protection is designed to replace lost income, so any workers compensation payments you receive may reduce the amount paid under your income protection policy. This is known as an offset and helps prevent you from receiving more than your usual income while on claim.
Workers Compensation Claim vs Income Protection Claim
Workers compensation claim:
- A workers compensation claim is usually made through your employer and their workers compensation insurer or the relevant state or territory authority.
- You generally need to show that your injury or illness was caused by your work or workplace.
- The claim process usually involves medical evidence, employer reporting requirements and assessment under the rules of your state or territory workers compensation scheme.
Income protection claim:
- An income protection claim is made directly with the insurer that provides your policy.
- You must meet the policy’s definition of being unable to work and satisfy any waiting period that applies.
- The insurer will assess your medical condition, income and policy terms before paying a monthly benefit.
- Payments continue while you remain eligible under the policy conditions.
Who Might Rely on Workers Compensation Alone?
Some people may feel comfortable relying only on workers compensation insurance, particularly if their risk of non-work injury or illness is low and they have other financial support in place. This may include employees who have access to generous paid sick leave, long service leave or employer-funded benefits that can cover them if they are unable to work.
It may also suit workers who have significant savings or alternative household income that could support them during a period away from work. However, relying only on workers compensation means you would generally only be covered for injuries or illnesses that occur because of your job, not for health issues that happen outside the workplace.
Who Should Consider Income Protection Insurance?
Income protection insurance may be worth considering for people who would struggle financially if their income stopped due to illness or injury. This can include employees who do not have long periods of paid sick leave, as well as casual or part-time workers whose income may be less predictable.
It can also be a good option for self-employed people and contractors who are not usually covered by workers compensation schemes. People with mortgages, dependants or ongoing financial commitments may also want to consider income protection, as it can help provide a regular source of income while they are unable to work due to a medical condition or injury.
Frequently Asked Questions and Answers
Is workers compensation the same as income protection?
No. Workers compensation insurance only applies to injuries or illnesses that occur because of your job or workplace. Income protection insurance is broader and can apply when you are unable to work due to illness or injury, regardless of whether it happened at work or outside of work, as long as the policy conditions are met.Can I claim workers compensation and income protection at the same time?
In some cases, yes. You may be eligible to receive payments from both types of cover if you meet the conditions of each policy. However, income protection is designed to replace lost income, so any workers compensation payments you receive will usually reduce the amount paid under your income protection policy to prevent you from being paid more than your usual income.Does workers compensation cover illness as well as injury?
Workers compensation can cover illness as well as injury, but only when the illness is directly related to your work or workplace. This may include conditions caused by exposure to hazards or repetitive tasks. Illnesses that are not linked to your job, such as common medical conditions or lifestyle-related illnesses, are generally not covered.Do self-employed people get workers compensation?
Self-employed people are usually not covered by standard workers compensation schemes unless they operate through a business structure that requires cover or they have taken out specific arrangements. Because of this, many self-employed workers rely on income protection insurance as a way to protect their income if they become unable to work due to illness or injury.What is the main difference between workers compensation and income protection insurance?
The main difference is what causes the injury or illness that is covered. Workers compensation applies only to conditions that are work-related and must be connected to your job duties or workplace. Income protection insurance, on the other hand, can apply to a much wider range of illnesses and injuries, whether they are work-related or not, subject to the terms and exclusions of the policy.
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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
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 70% 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 70% of the difference between the two.
I hope this helps answer your question.
Why is income protection insurance limited to 75% of salary and are the premiums based on this 75% or the 100%?? thank you
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.