What's the difference between Work Cover, income protection and accident & sickness disability insurance?

Worker Cover (also called worker’s compensation), income protection and accident & sickness disability insurance all pay an ongoing benefit if you are unable to work due to a disability, but the rules and regulations governing the three types of insurance are fundamentally different. Worker Cover is a mandatory insurance paid by employers to cover their employees, income protection is a personal insurance obtained from a life insurance company, and accident & sickness disability insurance is a personal insurance obtained from a general insurance company.

Here is the breakdown of Work Cover, income protection and accident & sickness disability insurance:

1.      Work Cover

Work Cover or worker’s compensation insurance must be taken out by all employers in Queensland by contacting WorkCover Queensland, which is a mandated by government legislation. As a director of a company or as a sole trader in Queensland you are not covered by Work Cover because you’re not considered a worker under the Act. It should be noted that there are differences for how worker’s compensation insurance is legislated in other states. Work Cover is designed to pay employees most of their wages if they are unable to work due to a workplace accident or due to a sickness caused by work. Unlike income protection and accident & sickness disability insurance, Work Cover does not cover you if you are off work due to an accident outside of work or due to a sickness not caused by work. However, Work Cover does pay medical expenses which are generally not covered by income protection or accident & sickness disability insurance. The percentage of your wages that Work Cover pays can vary depending on your award, but typical percentages are 85% of your wages for the first 6 months and then 75% of your wages for up to 2 years. The percentage may be reduced after 2 years, and cover would typically stop after 5 years. It is also common to be offered a lump sum payout.

2.      Income Protection

Income protection is taken out by you as an individual, which means you pay your premiums (not your employer). As income protection is a life insurance product, you have the option of paying your premiums from your Super fund as well as directly (e.g. bank account or credit card). Unlike Work Cover, which only covers you while at work, income protection covers you 24/7 and worldwide. You could have an accident while on an overseas holiday and you will be covered by income protection. Income protection also covers you for sickness. Income protection is designed to cover most of your income (e.g. 70% or 75%) if you are unable to work due to an injury or illness. Income protection policies have a waiting period, which is the period of time you need to be off work (or at least partially off work for some policies) before the benefit payments commence. The typical minimum waiting period length for most policies is 28 or 30 days. Longer waiting periods (e.g. 60 or 90 days) are usually also available, and taking a longer waiting period if it suits you lowers the premium for your policy. If you are an employee and have a workplace accident you can make a claim on both Work Cover and income protection, however, many income protection policies offset against worker’s compensation payments. The maximum length of time that income protection policies will pay you if you are unable to work due to an injury or illness for any one claim is determined by the benefit period specified on your policy schedule. You can have a benefit period which pays you until you turn 65, but shorter benefit periods (e.g. 2 or 5 years) are also available. Of course, the longer your benefit period, the more expensive your premium.

Income protection is taken out by you as an individual, which means you pay your premiums (not your employer). As income protection is a life insurance product, you have the option of paying your premiums from your Super fund as well as directly (e.g. bank account or credit card). Unlike Work Cover, which only covers you while at work, income protection covers you 24/7 and worldwide. You could have an accident while on an overseas holiday and you will be covered by income protection. Income protection also covers you for sickness. Income protection is designed to cover most of your income (e.g. 70% or 75%) if you are unable to work due to an injury or illness. Income protection policies have a waiting period, which is the period of time you need to be off work (or at least partially off work for some policies) before the benefit payments commence. The typical minimum waiting period length for most policies is 28 or 30 days. Longer waiting periods (e.g. 60 or 90 days) are usually also available, and taking a longer waiting period if it suits you lowers the premium for your policy. If you are an employee and have a workplace accident you can make a claim on both Work Cover and income protection, however, many income protection policies offset against worker’s compensation payments. The maximum length of time that income protection policies will pay you if you are unable to work due to an injury or illness for any one claim is determined by the benefit period specified on your policy schedule. You can have a benefit period which pays you until you turn 65, but shorter benefit periods (e.g. 2 or 5 years) are also available. Of course, the longer your benefit period, the more expensive your premium.

3.      Accident & Sickness Disability Insurance

Accident & sickness disability insurance is similar to income protection in that it is taken out by you as an individual, which means you pay your premiums, there are waiting and benefit periods, and you are covered 24/7 and worldwide.  Like many income protection policies, payments from accident & sickness disability insurance are offset against worker’s compensation payments. As accident & sickness disability insurance is obtained from general insurance companies, you must pay directly (e.g. bank account or credit card). Paying your premiums from your Super fund is not an option for accident & sickness disability insurance. Waiting periods for accident & sickness disability insurance are commonly shorter (e.g. 7 days, 14 days & 28 days) than waiting periods for income protection. The maximum benefit period for accident & sickness disability insurance is 2 years (cf. benefit period of until age 65 for many income protection policies). Unlike income protection policies available in Australia today, there are accident & sickness disability insurance policies available with an agreed benefit. These policies don’t require proof of your income at any time, including upon claim. The maximum agreed weekly benefit available currently on the Australian market is $1,500. These policies may be suitable for self-employed people with highly variable income.

4.      Conclusion

If you are an employee you will be covered by Work Cover, but this cover only covers you at work and not for sickness (unless your sickness was caused at work). It’s not a good idea to rely on Work Cover because if you have an accident outside work or become sick you most likely won’t be covered. Whether you have income protection or accident & sickness disability insurance depends on your personal circumstances. For most people, income protection is likely to be the better option, but if you are self-employed with a highly variable income, you can’t obtain income protection, or your income protection premiums have become prohibitively expensive for you as you become older, then accident & sickness disability insurance may be a good option.