Do you currently have or need Income Protection? If you are looking to apply for income protection insurance now is a good time to do so.
Significant changes are coming to the life insurance market in Australia that may impact you.
The Australian Prudential Regulation Authority (APRA) announced on the 2nd December 2019 a number of measures that will require life insurers to address issues with income protection insurance.
As a result, the design and some key features of current policies may no longer be available from the 31st of March 2020 with longer term consequences commencing 1 July 2021.
What are the changes?
- Ensuring disability income insurance benefits do not exceed the policyholder’s income at the time of claim, and ceasing the sale of agreed value policies from 31 March 2020
- Agreed cover is proposed to cease from 1 April 2020 which will only leave the option of an indemnity contract
- Avoiding offering disability income insurance policies with fixed terms and conditions of more than five years
Note that these changes are for stand-alone retail policies, and not for policies through your superannuation.
With effect from 31 March 2020
Agreed value policies
An agreed value policy is where the monthly benefit is the amount when the policy commenced. The monthly benefit does not change when your income decreases or increases, and is beneficial for occupations where income fluctuates from month to month. These will cease to be offered from 31 March 2020 and in place there will only be indemnity value policies, with the benefit amount determined over the 12 months prior to claim. This means that if you change to a lesser paying job within the 12 months, you can’t claim based on your old job’s pay. This could also see those that experience a temporary downturn in their income over the 12 months receive a significantly lower payment.
With effect from 1 July 2021
- The removal of excessive income replacement with a 100% benefit cap for the first six months, and 75% cap for payments beyond six months
- Maximum monthly benefit payment of $30,000
- A maximum term of five years, with a right to renew the contract without medical underwriting, but occupation and financials to be reviewed. This would mean on renewal you would only be offered the terms and conditions applicable to new contracts that are on offer.
How could this affect you?
If you are considering taking out an income protection policy, changing your existing cover from indemnity to agreed cover, or deciding on whether to move your cover from one owner to another (e.g. move your income protection from your superannuation into your own name) now would be the time to act and discuss with your financial planner before the current benefits are no longer available.
What happens to existing policies?
If you already have an income protection policy in place and are not wanting to make any changes, your policy will remain as is.
Please contact Belinda Holden at 360 Private Wealth on 03 5441 8700 to secure your time to review your current income protection requirements.