Centrelink protects low-income clients
Low income clients find income protection insurance difficult to afford. (Low income clients find everything hard to afford). The availability of Centrelink benefits means that an income protection policy may not be the best use of the scarce resources available to them.
For a client with dependent children, for example, who can only afford one of income protection or death cover, it makes sense to insure against death and TPD, and not worry about income protection because income protection is provided anyway by Centrelink.
Alternatively, it may pay to take a longer waiting period for income protection, with the commensurately lowered premium, and rely on Centrelink for the shorter term coverage.
The comparable Centrelink benefit to income protection insurance is the Sickness Benefit. This benefit can pay up to around $14,000 per year to an employed person who is unable to work due to illness or injury and who has no liquid assets (i.e. cash in the case of people for whom this type of ‘insurance’ should be considered) on which to rely. There are means tests, but a person can also receive up to $100 per fortnight from other sources (perhaps the default level of cover within their super fund) before the sickness benefit starts to (quite quickly) reduce.
The benefit also requires that the client utilise any sick leave benefits that may be available – something that casually-employed clients will not have access to anyway.
If the illness or injury is such that the client is disabled, they become eligible for the Disability Support Pension. This pension pays a higher amount of around $22,500 per year.
$14,000 is a not a lot of money to live on. Neither is $22,500. This solution is not one we want for ourselves or our own kids. But the reality for clients on low incomes is that their options are limited. The low income means that the ‘perfect’ text book insurance solution of income protection insurance to more adequately replace the lost wage or salary, plus cover for other situations such as death, may be simply unaffordable.