Govt disability payments ‘discourage’ insurance take-up

With the release of its recent Underinsurance in Australia Report, Rice Warner said the federal government is facing “substantial” costs to help underinsured Australians affected by disability or the death of a family member.

“Whenever an Australian of working age dies or becomes disabled, there are community costs which need to be borne by the government,” the report said.

Rice Warner highlighted that one of the contributing factors to the government paying such substantial costs was due to “generous publicly funded disability benefits”.

“[This] not only costs the government, but discourages private insurance take up,” the report said.

The report highlighted that the government pays about $57 million per year for life underinsurance, and $260 million for income protection underinsurance.

However the greatest hit to the government is TPD underinsurance, which is calculated to cost the $1.26 billion per year.

The report notes that there is an argument for providing tax incentives to encourage private insurance, however Rice Warner says an alternative to this would be to “change the social security income tests” so that it ignores the receipt of income protection benefits.

“This would provide an incentive for people to buy income protection,” the report said.

“However, both these alternatives may be seen by government as increasing overall government expenditure and, as such, are unlikely to be adopted, unless the cost can be funded from other sources.”