Income Protection and Insurance probably isn’t a topic that gets you overly excited, however there have recently been some major changes announced that we want to address with our clients to make sure they are getting the best coverage possible.
In November 2019 APRA have announced fundamental changes to income protection in Australia which may remove consumers ability to apply for an agreed value income protection policy, combined with other changes including only 5 year benefit periods instead of to age 65 or 70, which are currently available in the market. These changes are set to come into effect on the 1st April 2020, which means you don’t have long to make sure you have the appropriate Income Protection cover in place. Whilst we are not financial planners, we have a financial planner who takes appointments at our office at a time that suits you. If you don’t have income protection, or an agreed value policy and are considering putting protection in place or wish to have your policy reviewed by a professional life insurance adviser, the time to act is NOW. Covers arranged by 31 March 2020 are highly likely to be grandfathered (‘honoured’).
What are the Major Changes?
- Removal of Agreed Value policies – These are policies where the insurer agrees at the time of application (not time of claim) what your insurable income and monthly income protection benefit will be. It is proposed that they may no longer be available from 31 March 2020. Consequently, your income will be measured at time of claim to calculate the monthly benefit you will be paid. This type of policy is particularly important for those who are self-employed as their income can fluctuate from year to year.
- Reduced Maximum Payments – From 1 July 2021, new income protection policies will be designed to ensure benefits cannot exceed 100% of earnings at the time of claim for the first 6 months of the claim, thereafter benefits will be limited to 75% of earnings and subject to a maximum benefit of $30,000 per month
- Policy Contract Terms – Currently policies are available with benefit periods to age 65 and 70 that provide long term protection if you can’t work. The new measures will limit benefit periods to a maximum of 5 years with a continuation option. However, this will be subject to new medical and financial underwriting including changes to your occupation which could result in adverse cover outcomes
- Benefit Periods – From 1 July 2021, to better manage long term claim risk, insurers will be expected to put stricter definitions for long term benefit periods in their policies.
We believe it would be worthwhile speaking to a financial planner to review your position. Please contact us on (03) 8768 8788 and we can put you in touch with our financial planners.
Article Written by Paul Wineberg
Paul is a member of the Institute of Chartered Accountants, a Certified Management Accountant
Paul is a Director of South East Accounting.