Did you know income protection is changing?
Why the changes?
Income protection has been offered in Australia since the 90s. Since then insurers have been in an ‘arms race’ competing against each other offering better and better features and benefits to win new business and market share from each other.
This ‘arms race has now reached the tipping point. The insurers are now paying more out in claims than what they are collecting in premiums. This is not sustainable so the government regulator, The Australian and Prudential Regulatory Authority (APRA) has stepped in to ensure the industry is sustainable for the next 30-plus years.
What are the changes?
By the 1st of October 2021, Life Insurers in Australia will offer significantly less generous income protection policies. The key changes are:
- No longer offering guaranteed renewable policies for the life of the policy. The maximum contract period is now just five years. After five years, a new policy must be entered into that reflects the current market terms and conditions. Medical underwriting is not required but any changes to the policyholder’s occupation, or financial circumstances, must be updated and reflected in the new policy.
- Limiting the way in which ‘income at the time of claim’ is defined. Income at the time of claim will be based on earnings within the last 12 months. Currently, some policies allow you to look back 3 years, find your best 12 months’ earnings within the 3 years and use that income for your claim. In case you missed it ‘agreed’ value policies are no longer offered from 31 March 2020.
- Limitation on the income replacement ratio available. Current income replacement ratios can leave claimants in a better position than if they returned to work so now claims are capped at 90% of earnings for the first six months and then reduces to 70% after 6 months.
What if I have income protection?
Existing policies are not impacted, the current terms and conditions will stay the same.
What if I am thinking about getting income protection?
Get it prior to 1 October 2021. This way you lock in a policy with the current (more generous) arrangements.
Questions or confused?
If you don’t have income protection or are not sure your existing policy is right for you please reach out here.