The dangers of relying on workers compensation
- Financial Planning
Workers compensation is an integral part of our country’s employment landscape and provides valuable benefits for those who have been injured at work. As important as it is, however, does it really provide the level of income security you want to protect your family and your lifestyle? A closer inspection reveals that relying on workers compensation can fall well short of being an adequate answer.
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Most accidents occur away from work
The simple reality that you should first consider is that most of your life is spent away from work. Think of all the activities and situations you encounter outside of your work time; playing sport, working around the home, shopping, driving and other recreational activities are all outside of the workers compensation umbrella.
The common thread between all of these non-work activities is that they all involve risk. An accident while cleaning the gutters at home, on the sporting field or just out for a drive are all too common and workers compensation is of no use at all in these situations.
Let’s look at some hard facts on this. The Australian Bureau of Statistics suggests that leisure activities are the most likely place to suffer an injury and account for 27 per cent of recently injured people. Location-wise the stats tell us that the most common place to suffer an injury is around the home.
So, if the majority of injuries occur away from work, what proportion of injuries are work-related? The ABS reveals that just 25% of injured people aged 15 years and over suffered their injury while earning income at the time – not great odds when you consider that some injuries can have serious impacts on your income earning ability.
But there’s an even greater threat to your income
If you think about what events may affect your ability to earn income, accidents and injuries may be the first things that come to mind. The reality is, however, that illness is a far more likely cause of income loss and far outweighs the risks posed by injuries.
The Australian Institute of Health and Welfare tell us that the primary “burden of disease” is cancer at 18.9%, followed by cardio vascular disease at 16.1% and mental disorders at 13%. Injury ranks at a lowly 6.5%, so again workers compensation offers little comfort to the families affected by these medical conditions.
So what are the options if workers comp has limited use?
Of course workers compensation is not the only form of income replacement, but many of the other options still only offer limited protection. Sick leave is often the first port of call and it is certainly effective in the early stages of an illness or injury.
But how much sick leave do you have and what happens when it runs out? Even the most benevolent employer is not going to have the resources to continue paying you if you have a long term condition.
The next fall back is social security, but with the maximum disability support pension currently paying just over $325 a week (including supplements) for a member of a couple, this will really only cover a very basic standard of living.
Some of us may have the foresight to have some savings put away for a rainy day, but how long will that last? That only leaves the goodwill of family and friends to pick up the pieces, but few of us enjoy the thought of relying on others in this way.
A cost-efficient way to retain ‘income independence’
It really comes down to a personal decision about how you value the welfare of your family, the importance you place on your income independence and whether you are willing to bank on your ability to remain illness and injury free during your working life.
Many people decide that there is simply too much at stake and opt to insure themselves with a personal income protection plan. This provides the certainty and security, without reliance on government statutory schemes, social security or charity.
Income protection involves some cost, but this is often tax deductible and the coverage generally protects you 24 hours a day, 7 day a week, regardless of where you are or what you are doing (depending on the policy exclusions of course).
It also lets you insure for an amount that is relevant to your current earnings (although this is typically capped at 75% of your gross salary) and benefits are normally paid as a monthly income stream, which you can spend as you please.
They key on any such decisions about your financial security is to make sure your choices are informed and that you are aware of the consequences, whichever path you choose. A financial adviser can be an objective voice in these situations to help you weigh up the pros and cons and to help you find the best value cover.
What are your thoughts on income protection insurance? Let us know in the comments below.