Understanding Income Protection Insurance Versus Workers Compensation, and Protecting your Lifestyle with Income and Life Insurance

May 25th, 2012 by

Purchasing insurance to protect your family and your lifestyle can become confusing pretty quickly. Why, for instance, do you need to purchase income protection insurance if your employer has Worker’s Compensation insurance in place?

Worker’s Compensation in Australia has been the topic of many lively discussions over whether it would provide adequate benefits to help an employee maintain their day-to-day living expenses if they were to become ill or injured in a work-related event.

The school of thought among many Australians is that Worker’s Compensation benefits are too inconsistent from one state to the next, with claim amounts varying dramatically. If you are employed in Tasmania, for instance, and suffer a work related injury that makes you  eligible to file a claim, your Workers Compensation benefits could be about $602 weekly, whereas if your brother in Western Australia suffered a similar injury under similar circumstances, his Workers Compensation benefits are almost triple that of Tasmania’s at approximately $1,700 weekly.

Additionally, Workers Compensation will generally provide benefits under four categories after an employee suffers from a work-related injury or illness: medical expenses, income replacement, permanent impairment, and death benefits. There are circumstances that could make some employees eligible for all four types of benefits if their circumstances fit the criteria. However for the most part, depending on Workers Compensation for income protection can be risky. If you’re injured or become ill away from the workplace, Workers Compensation benefits may not apply, which puts you and your family at a serious risk.

In contrast, income protection insurance can cover most individuals who carry this type of insurance policy under most circumstances in which you are unable to work. It does not matter where you were injured or how you became ill; benefits are payable according the income protection plan you chose when you purchased your policy. To learn more about the differences between income protection services and Workers Compensation benefits, talk to your financial advisor for clarification. You can also visit MultiCover.com to compare insurance protection policies and learn more about how they work.

When you consider that only 25 percent of all injuries suffered by Australians each year occur at work, think about what would happen if you were suddenly unable to earn an income. Would your family be able to pay bills without your pay check? If so, for how long? Six weeks or six months? What if you were unable to work for a year or more?

Research showed that 27 percent of all injuries occur while a person is involved in a leisurely activity, 11 percent while playing sports, and the 37 percent that remain occur at or around the home. And although almost 700,000 Australians are injured in work-related accidents each year, only 216,000 actually receive Worker’s Compensation benefits.

Australian’s who believe they can rely solely on Worker’s Compensation without having an  income protection insurance policy in place face a bleak reality if they suddenly find themselves injured or ill and ineligible for Worker’s Compensation benefits.

Weekly Worker’s Compensation Benefits by State

As mentioned earlier, Workers Compensation benefits vary by state, from $602.35 per week in Tasmania, to $1,722.60 per week in Western Australia. Depending on your state and the nature of your injury, your benefits may be paid for anywhere from 13 weeks to nine years, but most are limited under a lump sum (impairment) benefit.  Benefit caps can range from $118,903 in Australian Capital Territory, to $230,983 in Southern Australia. These lump sum benefits are released once specific medical proof has been presented to a tribunal. The total amount is based on the level of impairment suffered.

Death Benefits Paid by Worker’s Compensation

Depending upon what state you live in, the death benefit can vary dramatically, from  $178,354 in the Australian Capital Territory, to $374,625 in Queensland.

Medical Expenses Paid by Workers Compensation

Workers Compensation does cover most reasonable medical surgical and hospital care for work related injuries in most states. In Western Australia, the cap for medical expenses is set at $48,813.

Illnesses and Chronic Disability Benefits Paid by Worker’s Compensation

Currently, four million people in Australia live with a disability, and 1.2 million people live with a severe disability. This can mean diabetes, asthma, cancer, depression, stroke, back problems and a number of other common ailments, none of which are covered by Workers Compensation in most instances.

Additionally, income protection insurance can provide benefits above and beyond the average weekly ordinary time earnings (AWOTE). Your income protection insurance policy generally pays 75 percent of your pre-disability income, and in some circumstances there is no cap on benefits, which can continue through age 65.

Protecting Your Lifestyle with Income & Life Insurance

Let’s face it, you have worked hard to establish and maintain your lifestyle. Like many Australians, you may even take it for granted until something happens to change the way you live and support your family.

We have discussed how income protection insurance can maintain as much as 75 percent of your income if you become unable to work due to illness or injury. Life insurance can add to your family’s level of protection by ensuring their quality of life is maintained when the unthinkable happens.

For the average Australian couple with a home mortgage, having the right insurance coverage in place can mean the difference between financial security and disaster. Particularly if yours is a one-income household, imagine the consequences if you were suddenly unable to work again due to permanent injury, illness, or death. How would your mortgage payments be met? How will your family maintain their everyday expenses?

Life insurance, combined with income protection insurance can be a good combination for many Australians who want to guarantee that their family will always be taken care of. This rings true also for singles who want to make sure their financial obligations are met if they become unable to work due to illness or injury, partners not married but holding joint assets, couples with children under the age of 18, retired people, and self employed contractors or business owners regardless of their relationship status.

How much Life Insurance and Income Insurance do you need?

Take the time to look over your income, assets, and living costs. If you were to consider purchasing income protection insurance, how much would you need to bring in weekly to maintain your expenses? Don’t forget to include mortgage or rent payments, car payments, utility bills, grocery costs and other expenses.

When determining the appropriate amount of life insurance you need, calculate your mortgage balance and other loans outstanding, your funeral and burial expenses, and enough for your family to continue comfortably for 12 to 18 months or longer, while they face establishing a new lifestyle without you.

When comparing life and income insurance policies, find out in advance how your premiums are calculated, what exactly is covered in terms of illness and death, policy terms and conditions, and what fees or commissions may be incorporated into your premium. Without knowing the answers to all of these questions, you might find yourself under-covered and unable to file a claim under certain circumstances. You should also be aware of any hidden fees lumped into your premium.

Be sure to seek advice from a professional who can answer all of your insurance related questions, and visit MultiCover.com.au to compare life insurance and income protection insurance policies and premiums.

The Importance of Income Protection for the Self Employed

February 25th, 2012 by

Self-Employed Income ProtectionIndividuals who are self-employed may find themselves financially at risk without income protection insurance in place. After all, if you are the sole operator of your business, there would be no one to keep things running if you were suddenly unable to work. If the business isn’t operational, what source of income will you have?

An income protection policy will provide you with a steady source of revenue in the event that you are not able to work due to illness or injury. Accidents and illness can happen to anyone at any time. By comparing income protection plans through MultiCover, you can learn about the many options available to you in order to best choose a policy that fits your needs and your budget.

How much can you insure?

Income protection provides self-employed individuals cover for up to 75 percent of the gross distributable income from the business, paid to you or a relative from the net income of the business before tax, including any superannuation contributions to you or the relative. An income protection plan can provide you with an ongoing income in the event that you are unable to work due to illness or injury. There are also many options available within your policy, so it makes sense to choose the options that are relevant to your occupation and lifestyle.

You can also choose between an agreed value policy and an indemnity policy. With an agreed value policy, your proof of income allows you to insure yourself for a set amount of money, which is advantageous because you will know exactly how much you will receive if you are unable to work due to illness or injury, even if your income changes after you purchase the policy. However, an agreed value policy usually costs more than an indemnity policy.

An indemnity policy allows you to insure your income for any declared amount. However, when it comes time to make a claim you will be required to verify your income. The premium on an indemnity policy is usually lower than that of an agreed value policy.

At MultiCover.com.au, we help you by providing a host of income protection insurance plans and providers, and the ability to compare income protection plans easily.

You may also choose between a Stepped Premium and a Level Premium. A Stepped Premium, which is calculated upon each anniversary of your policy at your current age. Stepped premiums are increased each year, and the rate of the increase becomes greater as you age.

A Level Premium, however, is fixed at a flat amount and will only be varied if you make any changes to the general rate levels while you own the policy. During the first few years after you purchase a level premium policy your rates will likely be higher than those of a stepped premium, but the savings over time can be considerable as long as you maintain the policy.

Keep in mind that you will need to consider the waiting period and benefit period of each plan you review when choosing the best option for your needs. Not only will it affect the cost of your income protection premium, it can affect whether you actually receive your benefits when you need them. For example, if you can get by for three months without an income, you can shave about one third of the cost off your premium by agreeing to a 90 day waiting period to receive benefits after filing a claim.

There are so many options for self-employed individuals to consider when choosing the right income protection insurance, it may seem confusing and even overwhelming at first. Go to Multicover.com.au for more information.