Insurers are stepping up their education campaigns as state governments cut workers' compensation schemes.
With the governments of New South Wales, Victoria and Queensland looking to cut workers' compensation, income protection would become crucial, particularly for people who might have relied on government support when sick, injured or unable to work, CommInsure general manager of retail advice Tim Browne said.
AIA Australia general manager of life insurance Damien Mu said "the insurance industry paid out over $1 billion in claims in 2011, providing significant support beyond the government-mandated workers' compensation scheme".
A TAL spokesperson said TAL had long been concerned about the high level of underinsurance by Australians to protect themselves and their families in the event of illness or injury, and that workers' compensation cover and life insurance income protection cover were separate and essential covers.
"There has been a strong growth in income protection as people look to protect their most valuable asset: their ability to continue to earn an income," the spokesperson said.
Browne said the proposed changes showed that with any government benefit scheme the rules could change.
"There's therefore no peace of mind that a certain payment will be available tomorrow or further into the future," he said.
"Both federal (Centrelink) and state (WorkCover) governments have the right to amend legislation to change benefits, entitlements and qualification rules under any government-run scheme."
Unfortunately, only one-third (31 per cent) of Australians had income protection cover, he said, citing a survey by Lifewise, run by the Financial Services Council.
Furthermore, CommInsure's survey of 1220 adults last year showed most individuals would need to rely on handouts such as government support if the family's main breadwinner suffered a serious illness or injury and was unable to work.
"No government in the world could tailor their support system to meet the needs of every individual, and with potential changes to NSW WorkCover, the conversation around the importance of income protection becomes more valid than ever," Browne said.
TAL was aware the NSW government has been concerned about the relative high cost of workers' compensation cover in NSW compared to say Victoria and was looking to reduce this cost.
"It is true that workers' compensation is often viewed by many people as being available to support them if something goes wrong, but the reality is that workers' compensation doesn't provide full income protection benefits and will often not meet people's financial needs for all sickness and injury," the TAL spokesperson said.
"Income protection is valuable as evidenced by the number of income protection claims increasing in recent years, yet it is in these tougher times economically people are more likely to forego their life insurance. However, it is times like these that people most need life insurance in case something does go wrong. We encourage people to consider having and retaining income protection cover."
AIA, which is Australia's largest group insurer, agreed income protection was an important part of a client's overall protection needs, irrespective of any changes to state and federal government programs.
"The workers' compensation scheme is not designed to take a person's individual circumstances into account so it should not be viewed as a standalone solution for support in the event of sickness, injury or critical illness," Mu said.
"Private income protection insurance provides coverage over the long term with benefit periods up to age 65 being the norm, without any tapering away of benefits.
"In many cases premium payments can be tax deductable. Any cuts to government workers' compensation schemes will further increase the importance of private income protection insurance for all Australians."
