Why DisabilityCare is No Replacement for Life Insurance

When the concept of the DisabilityCare scheme (formerly known as the NDIS) was first announced by the Government, concerns were raised about the impact that it may have on consumer attitudes towards life insurance. 

Although we welcome the launch of the DisabilityCare scheme which will provide much needed support for those with significant disabilities, it is clear that there is confusion about the scheme.

DisabilityCare Australia will be aimed at those who are most in need, providing long term, high quality support for people who are born with, or acquire, a permanent disability. Support may be provided if the disablement is permanent or where early intervention (ie. In childhood) can mitigate the impact on the individual’s ability to function.

What DisabilityCare is not

Since the DisabilityCare scheme is concerned with providing necessary funding and support, the draft scheme rules outline the things to be considered if funding is to be provided. This includes what it is reasonable to expect families, carers, informal networks and the community to provide. In practice, this means that those with greater support from families and others in the community will receive less funding than someone without that same level of support.

Why life insurance is still important 

  • The DisabilityCare scheme will not cover people for loss of income nor assist with other living expenses such as paying the rent or mortgage.
  • Life insurance is primarily concerned with whether the insured person meets the defined event and policy terms regardless of the level of support available to them through their families, carers or the community in general.
  • Life insurance like Income Protection can provide individuals with a regular income while temporarily unable to work and may also include payment of rehabilitation expenses.
  • Critical illness or total and permanent disablement insurance gives individuals greater flexibility over how they use their lump sum benefit.
  • Lump sum benefits can be used to support rehabilitation, pay for necessary aids or future medical costs or to provide an income over the longer term.
  • Part of a life insurance benefit could also be used to pay for a holiday for the family or to supplement income that is foregone as the individual is able to gradually return to work at their own pace. This freedom helps to alleviate the stress and anxiety on individuals and family members.

 

Australians already chronically underinsure their lives

Research shows that for total and permanent disability, the level of underinsurance is over $8 trillion and, for income protection alone, more than $600 billion. According to their research, the level of insurance cover held is less than 20% of need. This is concerning given the number of Australians who will be impacted by accidents or illness each year.

A 2008 survey conducted by the Melbourne Institute found that more than 235,000 working-age Australians, living as members of a couple, with dependent children, had suffered a serious illness or injury in the previous 12 months. This same survey found that more than 17,000 of this same cohort were unable to continue working due to illness, disability or injury during the previous 12 months. This emphasises the need for adequate levels of life insurance.

For consumers, this should not necessarily be a choice between DisabilityCare and life insurance. It is impossible to predict whether a future disablement will be severe enough to qualify for DisabilityCare. Life insurance allows the individual to take control should the unexpected happen, whether it’s to replace income or provide a lump sum that can be used for a variety of purposes, such as to cover debts and other expenses.

DisabilityCare is a big step forward and will assist many people – but in our view, is no substitute for life insurance.