Workers Comp vs Income Protection: What Actually Covers You (and What Doesn't)

Workers compensation (workers comp) is a compulsory insurance scheme funded by your employer. It covers you if you suffer an injury or illness arising from your employment. This includes physical injuries at work (slips, falls, repetitive strain), occupational diseases (asbestos exposure, hearing loss from noise), and psychological injuries caused by work (bullying, traumatic events, excessive workload).

Workers comp typically pays a percentage of your pre-injury earnings — usually 85–95% for the first few months, dropping to 75–80% after that. It also covers medical expenses, rehabilitation, and return-to-work support.

However, workers comp does NOT cover injuries or illnesses that occur outside of work. If you break your leg skiing, develop cancer, or have a heart attack at home, workers comp provides nothing.

Income protection insurance is a personal insurance product (often held inside super) that pays a portion of your income — typically 75% — if you're unable to work due to any illness or injury, regardless of whether it's work-related. This covers everything workers comp doesn't: cancer, heart disease, mental health conditions not caused by work, accidents outside work (car crashes, sports injuries), surgeries, and chronic conditions. Most policies have a waiting period (30, 60, or 90 days) before payments begin, and a benefit period (2 years, 5 years, or to age 65).

The premiums are generally tax-deductible if you hold the policy personally (not through super). Through super, the premiums are paid from your super balance, which means you don't feel the cost in your take-home pay.

Here's the reality: 85% of serious disability claims are not work-related. Cancer, heart disease, stroke, mental health conditions, and accidents outside work are all far more common than workplace injuries. Yet many Australians assume workers comp will protect them if they can't work.

It won't — unless the condition is directly caused by your job. Consider: if you're diagnosed with cancer and need 6 months off work, workers comp pays nothing (unless you can prove the cancer was caused by your occupation).

Without income protection, you're relying on sick leave (typically 10 days per year), any savings you have, and potentially Centrelink (which maxes out at about $800 per fortnight for a single person with no dependents). If you have a mortgage, car loan, or family to support, that gap can be devastating.

Most Australians already have some income protection cover through their super fund — many people don't realise this. Check your super fund's latest statement or log into your account to see what cover you've. Default cover through super is often a basic policy with a 2-year benefit period and 90-day waiting period.

This might be enough for some people, but consider whether 2 years of cover is sufficient if you develop a chronic condition. The advantage of super-funded income protection is that premiums come from your super balance rather than your bank account.

The disadvantage is that it reduces your retirement savings, and the cover may not be as comprehensive as a standalone policy. If you're self-employed or a contractor, you probably don't have automatic cover through super and should consider a standalone policy.

You should seriously consider income protection if: you have a mortgage or significant financial commitments, you have dependents who rely on your income, you don't have enough savings to cover 3–6 months of expenses, your sick leave balance is less than 2 weeks, or you're self-employed (no employer sick leave or workers comp). You might not need it if: you've substantial savings (6+ months of expenses), you have no financial dependents, your partner can support the household on their income alone, or you're approaching retirement with adequate super. The cost is typically 1–3% of your income.

For someone earning $85,000, that's roughly $850–$2,550 per year. If held personally (not through super), the premium is tax-deductible at your marginal rate.