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Is Workers’ Comp Enough? Why Income Protection Matters

2 days ago

What is Workers’ Comp

Workers’ comp is a type of insurance that an employer must have to pay employees who are injured at work or get sick as a direct result of their job. Eligibility and coverage varies depending on the state or circumstances.

What Does Workers’ Comp Cover

Payments may cover:

Wages while you’re unable to work
Medical expenses
Rehabilitation and recovery costs

But the injury or illness must be work-related and the claim must meet the eligibility criteria — which varies between states.

How Much Protection Does It Really Offer

A 2023 report from Safe Work Australia found:

3.5% of the working population experienced a work-related injury or illness in 2021–2022 (that’s around 497,300 workers)
But only 31% of these workers received any form of workers’ comp

Even when a claim is successful, benefits are often limited and may not cover the full extent of lost income or long-term needs — especially if the illness or injury means extended time off or permanent disability.

And here’s the key point: Workers’ comp only applies if the incident is work-related. That means if you’re injured at home, while playing sport, or just walking the dog, you may not be entitled to any support at all.

What If You’re Self-Employed

If you’re self-employed, a sole trader or independent contractor, workers’ comp may not apply to you at all. In these cases you must arrange your own protection — and relying solely on savings, emergency funds or support from others can quickly put pressure on your household finances.

Why Income Protection Matters

While workers’ compensation plays an important role, it has limitations — especially if your illness or injury happens outside of work. That’s where income protection steps in.

Income protection insurance provides a monthly benefit when you’re unable to work due to sickness or injury, helping to safeguard your financial security during difficult times. It ensures you can continue to meet your essential expenses — like your mortgage, bills, groceries, and family commitments — even if your ability to earn is temporarily or permanently affected.

This cover typically replaces a portion of your regular income and can be tailored to suit your specific needs, including benefit periods, waiting periods, and premium structures. Your medical history and lifestyle will be considered during the application process, and payments begin after your nominated waiting period.

Importantly, income protection covers you 24/7 — not just at work — and is available to employees, contractors and the self-employed. Many policies are also tax-deductible, making them a smart part of your financial strategy.

At Insight Wealth Planning, we help you navigate the options, choose a policy that fits your life, and understand how this protection works alongside other insurance types.

What is Income Protection Insurance

Here’s what it can do:

Covers work-related and non-work-related injuries and illnesses
Pays a percentage of your income while you’re unable to work
Available to employees, contractors and self-employed
24/7 worldwide coverage — at work, at home or on holiday
Temporary and permanent disability cover
Premiums are often tax-deductible
Can be tailored to your personal needs and financial goals

In short, income protection works when you can’t — giving you financial security and breathing room when it matters most.

Which Income Protection Policy to Choose

Income protection insurance is an essential part of any financial plan, providing a safety net if you can’t work due to illness or injury. With so many options available, choosing the right cover can be overwhelming. The key is to focus on your individual needs—your income, lifestyle and the level of support you and your loved ones would need if you were unable to work due to unforeseen circumstances. The right insurance policy will ensure your income is protected, your bills are paid and your family’s financial future is secure no matter what life throws your way.

Policy Types

When it comes to income protection insurance, understanding the type of policy you choose is important. There are two main types: agreed value and indemnity value. Agreed value policies are no longer available to new customers but those who already have them can continue to benefit from the certainty of a pre-agreed benefit amount. Most new policies are indemnity value which means your benefit payments are based on your income at the time of claim. Indemnity value policies are generally more affordable and work well for people with a stable income but it’s important to remember that your payments may be lower if your income drops before you make a claim. Knowing how your policy calculates benefit payments will help you avoid surprises and ensure you have the right level of cover in place.

Policy Details and Exclusions

Before you sign up to an income protection policy, take a close look at the policy details. The benefit period is how long you’ll receive monthly payments if you can’t work—this could be a couple of years to up to age 65 depending on your cover. The waiting period is the time you must wait after becoming unable to work before your benefit payments start; common waiting periods are 30, 60 or 90 days. Make sure the monthly payments offered are enough to cover your essential expenses and maintain your lifestyle.

Also review the policies exclusions. Most income protection insurance policies will not cover claims related to pre-existing medical conditions, normal and uncomplicated pregnancy, criminal activity or self-inflicted injuries. Other exclusions may apply so always read the policy details carefully to understand what is and isn’t covered. This will help you avoid disappointment if you ever need to make a claim. Tax is another consideration. In Australia, income protection insurance premiums are generally tax deductible which can help reduce your taxable income. However, any benefit payments you receive are considered taxable income and must be included in your tax return. If you have a suitable level of private patient hospital cover alongside your income protection insurance you may also be eligible for a Medicare levy surcharge exemption which provides further benefits.

Given the complexity of policy terms and the importance of getting the right cover it’s wise to seek advice from a qualified financial adviser. They can help you navigate the options, understand the relevant terms and select a policy that provides peace of mind for you and your loved ones.

While workers’ comp is important for work related injuries or illnesses, income protection insurance provides a broader safety net—covering you for a wide range of situations, whether you’re at work, at home or anywhere in between. By considering your benefit period, waiting period, monthly payments and policy exclusions you can choose a policy that truly supports you and your family if you’re unable to work.

Take Control of Your Financial Security

Peace of Mind Starts With a Plan

When it comes to protecting your financial wellbeing the best strategy is a proactive one. At Insight Wealth Planning we help clients build a personal protection plan that aligns with their life stage, risk profile and income.

Whether you’re employed, contracting or running your own business don’t wait for the unexpected to realise you’re underprotected.

Let’s make sure your income — and your future — is covered no matter what.