DisabilityCare – no replacement for insurance

With bi-partisan support, the National Disability Insurance Scheme (NDIS) or DisabilityCare as it is now known, is being rolled out progressively over the next five years, funded partially by a 0.5% increase to the medicare levy from this year onwards. However, it is not an insurance scheme as the name might suggest as it does not cover lost income or the cost of medical treatment.

The scheme covers only the basic care costs for people disabled from birth or as a result of an accident.  It does nothing to cover the cost of living expenses which is typically covered by income protection (IP) or total and permanent disability (TPD) insurance.

Income protection insurance provides up to 75% of your current income in the event of disability after an agreed waiting period for a set time or even to retirement age.  It is designed to ensure that in the event of a disability that you still have the income to pay for living expenses and repay debts. TPD insurance provides a lump sump payment designed to reduce or eliminate debts and also provide a lump sum capable of earning you income in retirement.

Disabilitycare will be partially funded by an increase to the medicare levy to 2%from July 2014.  It is estimated to raise around $3.5 billion per year, which sounds like a lot… but the estimated cost per year presuming full roll out by 2019-2020 is over $22 billion.  So there is a big gap and half the cost each year will have to be paid by state governments.  Launch sites have begun, but it’s important to know that many people won’t be covered until full rollout which is 5 years away in NSW (July 2018) and 6 years away (July 2019) for all other states.

A significant challenge that Australians face is, on the whole, we are chronically underinsured to the tune of “over $8 trillion dollars nationally, costing the Australian government nearly $1.5bn each year”, as reported in an article by John Brogden in the Australian newspaper. The article goes on to state that, “DisabilityCare will have almost no impact on this, as the majority of this cost is from income and other social-security payments.”

Personal risk insurance remains a critical part of any wealth plan and should be reviewed regularly in line with your income and assets. It is now  a requirement for all SMSF trustees to demonstrate that they have considered risk insurance in line with the needs to the fund members or significant fines apply.

For further information or queries relating to your situation, please contact one of the Fusion team.

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