The Difference between Workers Compensation and Income Protection Insurance
In this Advisr Experts Opinion, Greg Dobrin, of Sureserve Financial Services, provides knowledge on the difference between workers compensation & income protection insurance. The general thing to know is that income protection insurance provides a more comprehensive cover yielding a number of additional advantages.
The Difference between Workers Compensation & Income Protection Insurance
Workers compensation and Income Protection Insurance are similar but not the same. Both insurances cover the costs of a person's wages in the event of injury or illness. The main difference is the cause of the illness and the location of the injury. Workers compensation covers a person whilst at work, where it used to cover workers:
- on their way to work
- whilst at work
- on their way home from work
As seen by the trend, the cover is applicable only for work related injuries & illnesses. Income protection insurance covers the insured person for 24 hours a day, 365 days per year, regardless of whether the person is working or not (subject to any specific exclusions the insurer may request).
If a person has a workers compensation claim, future premiums will reflect prior claims. Previous claims do not affect the premium of income protection policies. Workers compensation is payable by the employing entity and the premiums are tax deductible. Income protection insurance may be paid by either:
- the insured
- another policy owner
- a company (as agreed)
- a superannuation fund
Premiums for income protection may either be tax deductible at the policy owner's marginal tax rate or tax deductible to the company (they may be subject to fringe benefits tax). Another advantage is that insurance holders may be covered till they turn 70 (subject to their policy).
In summary, income protection insurance provides more comprehensive cover, as the insured is covered 24/7, 365 days a year. The circumstances surrounding the illness & injury do not need to be work related whilst workers compensation claims do.