The National Disability Insurance Scheme (NDIS) is not a replacement for an insurance policy, but many Australians are being lured in by the term ‘insurance’.
What do you call an insurance scheme when it’s not actually an insurance scheme? The National Disability Insurance Scheme.
The NDIS trial period is over and the full roll-out of this government initiative has commenced.
But it doesn’t change the fact this is not an insurance scheme. It does not replace a portion of an individual’s income, it does not pay a lump sum benefit on occupational disablement or upon diagnosis of a specified medical event, nor does it pay out upon death.
When the Rudd government first proposed the NDIS there was considerable concern from the financial sector over the usage of the words “insurance scheme”.
The term ‘insurance’ is defined as "an arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium”.
The NDIS is solely funded from tax revenue and does not pay any form of compensation to the eligible person.
Wisely, the Gillard government changed the name of the scheme to the far more apt title DisabilityCare Australia, purely to avoid the confusion whereby the NDIS could have been mistaken as being a valid replacement for life insurance coverage.
In 2013, the incumbent Abbott government changed the name from DisabilityCare Australia back to NDIS.
So why the growing concern? Consumer feedback following the trial roll-out of the NDIS has seen the following comments on social media:
“I feel sorry for you if you are going to rely solely on an income protection insurance package that will only pay out 60 per cent [sic] of your income…”
How much of your income will the NDIS pay to you? Nil.
“So basically it is the tax payer looking after those who don’t have TPD insurance…so why am I paying insurance?”
"How much lump sum dollars will the NDIS pay to you? Nil."
“Perhaps those who have purchased life insurance with TPD should be exempt from this levy”; and “the only losers from this will be the insurance companies who sell disability insurance…”
Now that we have entered the full roll-out period, just how many more ill-informed consumers will be thinking along these lines?
Some of the benefits provided under the NDIS to eligible Australians (aged from birth to 65) are:
- Aids and appliances – e.g. artificial limbs and communication aids.
- Home and vehicle modification costs.
- Personal care – such as showering and general hygiene assistance.
- Domestic assistance – such as shopping, food preparation and cleaning assistance.
- Respite care.
- Guide dogs.
The one fundamental thing the NDIS does not do is pay an eligible recipient any form of monetary compensation. Each eligible person has a ‘package’ put together for them based on their final assessment and meeting a rigorous set of requirements and definitions.
Don’t mistake the genuine benefits the NDIS will provide. A charity I work with has already detailed the benefits delivered to physically and mentally impaired children as a direct result of the trial roll-out in one part of Queensland.
Of growing concern is the actual cost of the NDIS. The current levy will raise $3.3 billion per year (rising each year) with the total cost in year one of the scheme being $22.2 billion. Fifty-three per cent of this is to be federally funded; the rest will come from the states. Funding has been allowed for up until around 2020-21, increasing in each federal budget, but thereafter will rely upon new and increased funding being allocated1.
Anyone see a whole new budget black hole developing here?
As the NDIS is wheeled out and more and more people directly or indirectly become aware of its existence, we in the financial services industry must make sure there is no mistaking that the scheme does not provide any form of financial compensation and that it is not an ‘insurance’ policy!
Also, don’t forgot the other proposed initiative to follow after the NDIS called the National Injury Insurance Scheme (NIIS). Unlike the NDIS, the NIIS will have the potential to offer a form of compensation for catastrophic injuries, but more so by utilising existing workplace and MVA facilities and funding. Again though, it will NOT replace the need for income protection, TPD, trauma and life insurance.
Phil Smith is a director of Dawes Smith & Partners
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