The Whats and Hows of Accident and Illness Insurance

By Maria Rogerson

April 26, 2022Blog Finance

The majority of Australian businesses and organisations, be it in the public or private sector, are required by law to provide Worker’s Compensation Insurance that offers protection to employees if they suffer a work-related injury or disease. This compensates workers during the period when they are unable to work. It covers full or partial wages lost during that period and reimburses insured parties for any incurred medical expenses and rehabilitation costs. Specific guidelines are set out by individual state regulations.  

However, not all employees are covered. Non-employing businesses like sole traders, members of partnerships and contractors are not eligible for worker’s compensation. So, what happens in the case of serious injury, illness or accidents and the effects of potential loss of income? Here personal accident and Illness insurance covers you when you are unable to work.  

What is Personal Accident and Illness Insurance?  

Basically, this is the insurance that protects your most important asset – the ability to earn an income. It offers coverage for the entire period of the policy, during which workers are unable or unfit for work. This can be due to a range of unforeseeable events like injuries sustained on the worksite, prolonged illness, and work-related accidents. The impact of such occurrences can be debilitating and cause extreme financial stress, especially for sole proprietors who are the single breadwinners in a family. The inability to meet essential expenses, like bills, rent, mortgage repayments and day-to-day living expenses can be too much for anyone.  

What does Accident and Sickness Insurance Cover? 

Accident and sickness insurance is designed to provide workers with a monthly benefit of up to 80 per cent of reported income for the duration of the policy. Workers can choose to be covered solely for accidents or solely for illness. Structuring the policy is vital. Selecting accident or injury only will mean lower premiums, though leaves you vulnerable in the event of illness. The majority though choose coverage for both accidents and sickness.  

Coverage can relate to only events that happen on the job, those at work and whilst commuting, or full coverage. While choosing single options, for instance work-only coverage, will be cheaper, unfortunate situations that limit your ability to work and not included in the policy won’t be covered.  

What it doesn’t Cover 

Personal accident and illness insurance includes exemptions that are not covered. Examples include pre-existing medical conditions, accidents or incidents where drugs or alcohol are involved, intentional self-harm or suicide, and injuries incurred in criminal acts or acts of terrorism.

Coverage and Claims  

To be eligible to make a claim, you must have suffered an illness or injury that has left you unable to work. Some insurers require a medical statement issued from a pertinent authority (GPs, private or public hospitals, clinics etc.) before validating the claim. However, most insures forego this requirement as this is only one of the very few ways a large portion of the working-age population can claim benefits when not being able to work.

Claims can be affected by waiting periods, cited benefit amounts and the duration of the benefit period. Waiting period refers to the time you are unable to work until a claim is payable. Opting for a shorter period raises policy cost but ensures that claims are made sooner. Generally, the waiting period can be anywhere from seven days to four weeks. 

Benefit amounts stipulate how much money you will be paid, weekly or monthly, during the period that you are unable or unfit to return to work. Here too you may need to provide evidence of previous income. In addition, any benefits that you do receive must be declared with the ATO, and are taxable. To get the right sum, claimants need to declare pre-tax income. 

The benefit period is the duration that you will receive benefits. Insured workers can choose between several options here, and policies vary among insurers. Generally, illness insurance policies start out at three months, and go on to three years. There are also extended benefit periods, up to five years or more. Opting for longer benefit periods may be more costly, but there’s peace of mind should your recovery last longer than initially planned. 

Who is it for?

The sick and accident insurance is aimed at non-employing businesses. This encompasses the vast majority of small and medium businesses in Australia, which as of 2021 account for 2.3 million registered entities, and roughly 63 percent of all businesses in the country. Estimates are that they contribute roughly 60 percent of Australia’s GDP.  Within this category are tradesmen, subcontractors, sole-owners, sole proprietors and small businesses with no payable employees.  

What are the Advantages?

The obvious advantage of personal accident and sickness insurance is regular payments for the length of the policy. This also covers insured parties and their nominees in the event of death for the insured sum. In cases where you are left with permanent disability, insurers will pay out the total amount that you are insured for.

In addition, it covers all hospital expenses during treatment, and ambulance costs in accidents. As mentioned, most insurers won’t demand proof or documentation of illness, so privacy is also ensured. Some insurers cover events solely in Australian borders, though most also offer claims if injury, illness or accidents are sustained overseas.