Many people get confused with National Disability Insurance Scheme (NDIS) and life insurance or other personal insurance policies.
The disability insurance scheme covers only the basic costs of care for those disabled from birth or as a result of an accident and the condition significantly affects their communication, mobility, self-care or self-management.
It does not cover the cost of daily living expenses and will not provide a support that consists of income replacement. This is not a criticism of Disability Care, which is a massive step forward that will assist many Australians. But it will not provide a substitute income for those left unable to work.
On the other side, Total and Permanent Disability insurance pays a lump sum if you become totally and permanently disabled and cannot work rest of your life again. In 2008, the Australian Institute of Superannuation trustees found that about 71per cent of its superannuation fund members had TPD cover. However, the level of coverage is too low to meet ordinary wage earners’ daily expenses. In general, your employer on behalf of you sets up the insured amount without taking into consideration your personal and financial commitments. Moreover, the total and permanent disability insurance option under your superannuation fund is any occupation not own occupation. Some of the insurance covers under superannuation environment are reduced each year, as you get older.
We all know that an accident, sickness or death of a working age parent will usually have a significant impact on the financial circumstances of the family. Despite this, Rice Warner Actuaries calculate that over 95 per cent of families do not have adequate insurance in Australia. Based on current median levels of cover for total and permanent disability, the level of underinsurance is an extraordinary $8 trillion nationally and, for income protection alone, $600 billion.
Income protection insurance provides a replacement income for those who are temporarily or permanently unable to work due to illness or injury. The replacement income can be up to 75 – 80 percent of your current gross income and can be for short or long periods, generally after a preselected waiting period. And the premiums you pay are tax deductible.
The 2008 Household Income and Labour Dynamics Australia Survey found that more than 235,000 working-age people, living as members of a couple with dependent children, had suffered a serious injury or illness in the previous 12 months. The same survey found that more than 17,000 employed people who were living, as members of a couple with children were unable to continue working due to illness, disability or injury over the previous year.
By taking out income protection, life insurance or other personal insurance covers – total and permanent disability, trauma – you are ensuring that if your income stops, your lifestyle does not. In case you stop working due to illness or accident, or pass away, your family can continue with financial support to live the life you have worked so hard to provide them with.
Let’s be in control of our financial life.