Claims, Mistakes and Official Sources
Income protection offsets: workers' compensation, CTP, sick leave and Centrelink
How income protection benefits are reduced by workers' compensation, transport accident payments, sick leave, other cover and Centrelink, state by state, with arithmetic.
Most income protection policies reduce your monthly benefit by other disability income you receive for the same period, so the total stays within the policy's limit. The usual offsets are workers' compensation, transport accident or CTP income payments, other income protection or salary continuance, and sometimes sick leave or employer payments. Centrelink payments are usually not offset by the insurer, but your income protection benefit counts as income for Centrelink's income test. Read the "offsets" or "other payments" section of your PDS or your fund's insurance guide before you rely on a figure.
This guide is part of the claims and complaints guide. Amounts are illustrative.
Common offsets
| Payment | Usually offset? | Notes |
|---|---|---|
| Workers' compensation weekly payments | Yes | Many policies also offset lump-sum settlements that include lost income |
| Transport accident or CTP income benefits | Yes | Depends on your state's scheme |
| Other income protection or salary continuance | Yes | Prevents being paid more than the limit by two policies |
| Sick leave | Varies | Many group policies offset paid sick leave; some retail policies do not |
| Annual and long service leave | Usually not | Check the definition |
| Employer top-up payments | Often | Especially if called salary continuance |
| Centrelink income support | Usually not | But your benefit affects Centrelink |
| Income from investments | No | Not related to your work |
| Partial work income | Partial benefit formula applies | You are paid a proportion of the benefit |
Why insurers offset
New policies generally cap the benefit at 70% of pre-disability income (up to 90% in the first six months). If you also receive workers' compensation at, say, 95% of your earnings, paying both in full would leave you better off not working. Offsets keep the combined payments within the cap.
Workers' compensation and accident schemes by state
Every state and territory runs its own workers' compensation and transport accident scheme, with different weekly payment rates and step-downs over time. That affects how much your income protection pays on top.
| State or territory | Workers' compensation regulator or scheme | Road accident scheme |
|---|---|---|
| New South Wales | SIRA (regulator), icare (insurer) | CTP regulated by SIRA |
| Victoria | WorkSafe Victoria | Transport Accident Commission (TAC), no-fault |
| Queensland | WorkCover Queensland | CTP, Motor Accident Insurance Commission |
| South Australia | ReturnToWorkSA | CTP regulated by the CTP Regulator |
| Western Australia | WorkCover WA | Insurance Commission of Western Australia |
| Tasmania | WorkSafe Tasmania | Motor Accidents Insurance Board, no-fault elements |
| Northern Territory | NT WorkSafe | Motor Accidents (Compensation) Scheme, no-fault |
| ACT | WorkSafe ACT | ACT CTP scheme |
| Commonwealth employees | Comcare | State scheme where the accident happened |
Weekly workers' compensation payments in most schemes start near your pre-injury average weekly earnings and step down after a set number of weeks, and may stop after a set period. Each scheme sets its own percentages and limits, which change. Check your scheme's website for the current rates.
Worked example: workers' compensation step-down
Illustrative: Aaron earns $7,000 a month and has income protection of 70% = $4,900 a month, with a 30-day waiting period, offsetting workers' compensation. He is injured at work.
Suppose his state scheme pays 95% of his pre-injury earnings for the first 13 weeks, then 80% after that.
| Period | Workers' comp | Policy benefit before offset | Offset | Policy pays | Total |
|---|---|---|---|---|---|
| Months 2–3 | $6,650 (95%) | $4,900 | $6,650 | $0 | $6,650 |
| Months 4–6 | $5,600 (80%) | $4,900 | $5,600 | $0 | $5,600 |
| After workers' comp stops | $0 | $4,900 | $0 | $4,900 | $4,900 |
Aaron's income protection does not pay while workers' compensation exceeds the benefit. It becomes valuable when workers' compensation stops, or if the claim is not accepted as work-related. Many policies waive premiums while you are on claim, even if the benefit is fully offset, which is worth checking.
If Aaron's policy had a cap of 90% in the first six months, and workers' compensation paid 80%, the policy might top up to 90%: 90% × $7,000 − $5,600 = $700 a month. This depends on the policy wording.
Centrelink
- Income protection counts as income for Centrelink income tests, such as JobSeeker Payment and partner payments. A benefit may reduce or stop these payments.
- Lump-sum TPD or life payouts can affect assets tests and may trigger a preclusion period for some compensation payments if they include an amount for lost income.
- Tell Services Australia about any benefits you receive.
Super income protection plus retail
If you have income protection in super and a retail policy, each usually offsets the other. Holding both does not double your income; it can give longer cover, for example the fund pays for two years and the retail policy to age 65. See choosing waiting and benefit periods.
Questions to ask before you claim
- What payments does my policy offset, and does it offset lump sums?
- Does it offset sick leave?
- Are premiums waived while I am on claim?
- If workers' compensation is disputed, will the insurer pay in the meantime, and recover it later if workers' compensation is paid?
- How does the policy treat a workers' compensation lump-sum settlement?
See also life insurance mistakes to avoid and AFCA complaints if an offset is applied wrongly.
Frequently asked questions
Should I claim workers' compensation if I have income protection?
Usually yes, if the injury is work-related. Many policies require you to claim other entitlements first. Workers' compensation also covers medical costs.
Will income protection pay if workers' compensation is denied?
Generally yes, if you meet the policy definition. Some policies pay while workers' compensation is disputed and recover the money if it is later accepted.
Do offsets apply to TPD or trauma?
Generally not. TPD and trauma are lump sums paid on meeting the definition.
Sources
- Safe Work Australia — comparison of workers' compensation schemes
- WorkSafe Victoria — Victorian workers' compensation
- SIRA — NSW workers' compensation and CTP
- Services Australia — income tests and compensation payments
- Moneysmart — income protection
