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Workers compensation vs income protection

Workers compensation vs income protection

(Reading time: 3 - 5 minutes)

What’s the difference? Accidents happen every day, so it pays to be protected. With so many different cover options, many people question what’s right for them and their families.

When it comes to covering your income if you can no longer work, what’s better? Income protection, workers compensation, or both?

What’s the difference between income protection and workers compensation?

The key difference between workers compensation and income protection is whether cover will be provided and to what extent.

When it comes to workers compensation [1], cover will only be provided if the accident or illness occurs as a direct result of the job. Payments can be used to cover income for the duration that you are unfit to work or up to 65 years old in most cases (sometimes 67), as well as any medical expenses or rehabilitation. The key point when it comes to workers compensation though is where and why the injury or illness has occurred. If you cannot prove that it was a result of jobs undertaken at work, then you will not be eligible for compensation.

In contrast, Income Protection [2] can cover you for injuries and illnesses suffered both at and because of work, and also outside of work. When you consider 75% of accidents occur when a person is at home or during leisure time, compared to 25% at work [3]. Taking out income protection may help you to cover outgoings and expenses, should something occur outside of work that impacts your ability to earn an income.

Workers’ compensation costs and benefits are paid for by the employer, with workers compensation systems varying from state to state [4]. Income protection insurance premiums on the other hand are usually paid for by the individual.

What does income protection offer? You can’t make an informed decision unless you have all the facts.

Income protection can give you the support of an alternative source of income if you are unable to work due to an injury or an illness. Benefit payments of generally up to 75% of your average income are paid monthly, which can help you to cover expenses.

Remember, relying on workers compensation means you won’t be covered if the injury or illness isn’t due to work or your workplace and usually, you’ll need to present evidence to prove the injury or illness occurred as a direct result of your job. Sometimes, this may be difficult and this can result in lengthy delays. And if you’re self-employed, a sole trader or an independent contractor you may not be covered under a workers compensation scheme. While some people believe income protection is only for high income earners, this isn’t the case.

What is the impact of having both workers compensation and income protection? You can have both workers compensation and income protection. However, having access to workers compensation may mean a reduced insurance benefit [5] from your income protection policy. Why? Income protection is designed to help cover your loss of income, but if you’re already being compensated for the loss of that income from somewhere else, such as workers compensation, this will be factored in and generally your income protection benefit will be reduced accordingly.

According to the Australian Bureau of Statistics [6] 47% of Australians who suffered an injury or illness as a result of work received no financial assistance in 2017/18. While workers compensation is great, it doesn’t cover everything, especially not broken bones that prevent you from working if they occur while on holiday or even just as a result of a fall at home.

Income protection offers peace of mind, so that you and your family can be protected should your income be affected by injury or illness.



Still have some questions? Are you covered?

Speaking with one of our financial advisors is a good place to start. Make a booking or call us on 02 9328 0876 to arrange a meeting.


[1] Fair Work Ombudsman 2020, Workers Compensations, viewed January 2020
[2] TAL Slice of Life Blog, 2 January 2019, Income Protection Insurance: Protect against the unexpected, viewed January 2020
[3] 2020, Income protection insurance vs WorkCover, viewed January 2020
[4] Nolo 2020, Who Actually Pays for Workers’ Compensation?, viewed January 2020
[5] Compare the market 2020, Do I need life insurance or income protection?, viewed January 2020
[6] Australian Bureau of Statistics, 2018, Work-Related Injuries Australia,July 2017 to June 2018, viewed January 2020,

General Disclaimer: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. Please seek personal financial advice prior to acting on this information.