Q. If I am an employee and therefore have Workers compensation insurance for loss of income, why would I need to pay for personal Income Protection insurance?

A. Workers compensation insurance is compulsory insurance provided by employers to protect employees if they become injured at work or become sick as a result of tasks carried out at their work. Those who are self-employed as individuals or in partnership are ineligible for Workcover insurance.

Each state government regulates their own workers compensation scheme and the schemes are administered differently. In NSW, Victoria and South Australia, insurers operate as scheme agents on behalf of the government authority. In Western Australia, Tasmania, Northern Territory and ACT, insurers privately underwrite the scheme. In Queensland, the scheme is operated entirely by the state.

Workers compensation only applies to work related injuries and illnesses. Recent legislative changes have meant that depending on where you live, accidents while commuting to work may not be covered.

If you become sick or have an accident that is not related to your work, you are ineligible to claim a benefit.

A maximum weekly benefit applies that varies from State to State. In NSW the maximum weekly benefit is currently $2,117. Typically for the first 13 weeks you are entitled to the lesser of 95% of your pre-injury average earnings or the maximum weekly benefit. From week 14 your benefit will be reduced to 80%, up to the maximum weekly benefit. You are entitled to receive benefits for up to 130 weeks unless you are totally incapacitated. If you are totally incapacitated you may continue to receive weekly benefits for up to a total of five years at which point your benefits will cease. Thereafter any compensation will be determined by agreement between you and the insurer or by the courts.

Workers compensation may not pay benefits if an injury or disability was the result of the negligence of the employee. This might include any failure to follow prescribed instructions or to meet the occupational health and safety requirements.

Income Protection insurance usually provides a replacement income of up to 75% in the event that you are unable to work in your usual occupation for a period of time as a result of sickness or accident. Unlike Workers compensation, you are covered for sickness or injury at anytime, anywhere in the world and Self-employed workers are eligible to apply for cover. Sickness or accident as a result of intentional self-injury is not covered. Exclusions may also apply for sickness or accident as a result of pre-existing conditions or as a result of criminal behaviour.

A waiting period will apply whereby you must be totally incapacitated for the duration of this period before a claim is admitted. This waiting period varies from 2 weeks up to 2 years. Typically waiting periods are between 30 and 90 days.

The period of time you are eligible to receive a benefit can also vary from 2 years to age 70 and in some rare cases, your lifetime.

Premiums for Income Protection are tax deductible and the benefits are treated as taxable income.

Income Protection may also provide other benefits that are not covered under WorkCover. These benefits may include specified injuries cover, cover for specific trauma events and costs such as modifications to your home to assist in rehabilitation.