After wage insurance? Find the right cover for you.
What would you do if you fell sick with a serious illness and had to take a few months off work? Would you be able to provide for your family if you didn’t have a steady stream of income to help pay for regular expenses like your mortgage, bills and even groceries?
What's the benefit of wage insurance?
Wage insurance can help you stay on top of your finances if you’re unable to work due to an injury or an illness. Wage insurance can provide:
- Ongoing payment to replace your income. You can get up to 75% of your original income while you cannot work, or choose another fixed amount.
- Rehabilitation benefits. Some wage insurance policies can include rehabilitation benefits to help cover these expenses and get back on your feet sooner.
- Tax deduction benefits. The payments you make for your policy can be deducted as an expense at tax time.
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Find out more about wage insurance in Australia
As the name suggests, wage insurance offers protection for you and your family if you are unable to work. Wage protection insures you for a predetermined level of your income, usually 75% of your salary, and will pay that amount for the period of time that injury or illness keep you out of the workforce.
Wage insurance is worth considering for anyone who relies on their income to pay their bills and look after regular expenses. It can be especially important for the self-employed, small business owners, and anyone whose business relies on their capacity to work.
Wage insurance can also cover part-time workers. if you're working part-time, you may not have the savings to cover living expenses if you're unable to work. If you're working part time in order to to find time to take care of children as well, then wage insurance may be particularly important for in order to provide for your family and make sure the bills are paid.
Wage insurance is also recognised under a number of different titles including:
- Income protection insurance
- Income replacement insurance
- Income cover
- Salary continuance insurance
Essentially, wage insurance lets you focus on recovery and returning to work, instead of needing to balance financial stress on top of a serious injury or illness.
Wage insurance is not the same as workers compensation.
- Worker's compensation can only pay out for injuries sustained at work, or while commuting to and from work.
- Worker's compensation is generally designed to help pay for essential medical and rehabilitation costs.
- The income replacement benefits provided by worker's compensation schemes will gradually decrease over time, and the amount you are entitled to can vary widely and may not be enough to replace your usual income
By contrast, wage insurance covers roughly 75% of your salary and will generally keep paying that amount over the entire period of insurance. It covers you around the clock wherever you are, and can also include a range of additional benefits that go beyond the minimums usually provided by worker's compensation.
Some wage insurance policies can provide redundancy benefits in addition to income replacement in the event of disability. If you are unexpectedly made redundant, these payments can help give you more time to find a new job. This can be the difference between needing to move out, sell a car or otherwise make adjustments which could make it even harder to find work.
With wage insurance that includes redundancy cover as an option, you may be covered in the event of unexpected employment, or as a self-employed person in the event of bankruptcy or insolvency. In addition to this, the policies still include the usual cover for being unable to work as a result of sickness, injury or disability.
How long will wage insurance last?
Wage insurance can last for different periods of time depending on your chosen policy. Generally, insurers will offer you a choice of two year or five year benefit periods, but you may be able to find policies with additional options.
Your chosen benefit period is the main time limit on wage insurance benefit payments, while an age limit is the other. This age limit is generally about 70 years old. Wage insurance benefit payments will run out when you reach either the benefit period limit or the policy age limit, whichever comes sooner.
The ability to have a steady income is one of your most valuable assets. Unlike other types of life insurance, which provide cover for things like death and permanent disablement, wage insurance helps you manage your regular expenses so you can stay on top of things financially if illness or injury forces you out of work.
You can bundle wage insurance with life insurance, and other forms of cover with a combined life insurance policy. This may be a more cost-effective way of getting a wide variety of cover.
Life insurance and wage insurance
|Differences||Life insurance||Wage insurance|
|Purpose||To clear debts and provide financial support to dependents following the policyholder’s death.||To keep up with debt repayments and other regular expenses while the policyholder is out of work.|
|Benefit||A lump sum paid upon death or diagnosis of terminal illness.||Paid as an ongoing benefit, usually monthly, and typically covering 75% of regular income|
TPD (Total and Permanent Disablement) insurance and wage insurance
|Differences||TPD insurance||Wage insurance|
|Purpose||To help support you and your family if you become totally and permanently disabled.||To help keep up with expenses if you become temporarily disabled, and to provide benefits for a limited period of time if you become permanently disabled.|
|Benefit||A lump sum payment to help cover rehabilitation costs, repay debts and cover the cost of living.||Monthly benefit payments, with some policies offering extra sums in the event of permanent disablement.|
Trauma insurance and wage insurance
|Differences||Trauma insurance||Wage insurance|
|Purpose||To support you and your family if you suffer severe medical trauma such as heart attack, stroke or cancer.||To help cover regular expenses when medical trauma leaves you unable to work.|
|Benefit||Paid in a tax-free lump sum to help repay debts, cover medical bills, and even take time off work to assist in recovery.||Paid as an ongoing benefit, usually monthly, and typically covering 75% of regular income.|
- Total disability benefit. Wage insurance pays a monthly benefit if you suffer a loss of income because you are unable to work due to disability. This benefit will start to accrue as soon as the waiting period has ended.
- Partial disability benefit. Wage insurance policies will cover you if, due to illness or injury, you are only able to work in a reduced capacity (such as a few days a week) and therefore suffer a reduction of income. The amount paid will be dependent on your usual payment amounts, and the level of reduction in your work.
- Recurrent disablement. If policy holder returns to working, but then has to stop again as a result of the same medical conditions as before, or one resulting from it, the waiting period will be waived and the claim will be treated as a continuation of the prior disablement.
- Death benefit. If the person insured dies, wage protection insurance policies will pay out a lump sum to help the insured person’s family cover expenses. This can help your family stay on top of things financially as they cope with your death.
- Rehabilitation benefit. Wage insurance policies will pay a benefit if you are totally or partially disabled and, during that period, are participating in an approved vocational rehabilitation program. However, medical costs and treatment costs such as physiotherapy, will instead be covered by your regular health insurer where applicable.
- Claims escalation option. This option ensures that the amount insured will automatically increase each year to keep pace with inflation.
- Other benefits. A range of other optional benefits can also be included in your wage protection insurance policy, so make sure you get the right cover to suit your individual needs.
Several factors influence how much your wage insurance policy will cost. These include:
- Your age
- Your gender
- Your lifestyle habits, for example smoking
- Your occupation. Some jobs carry a higher risk of injury than others
- The waiting period. This is the period of time you must be not working before your cover will begin. The shorter the waiting period, the higher the premiums.
- The benefit period. Wage protection policies will only pay you a benefit for a certain period of time, and you need to choose how long that will be.
- Extras and added options.
Wage insurance is a tax deductible expense, which should be taken into consideration when you’re filing your tax return. You can claim the cost of your premiums against the loss of your income, but you must also include any benefit payment you receive under a wage insurance policy on your tax return.
Many superannuation funds offer the option of including wage insurance through your super account. This may carry some cost benefits and other advantages, but also some downsides.