The New Income Protection Rules in Australia
The New Income Protection Rules
Do you rely on working and earning an income?
If you had an accident, illness, or injury that prevented you from being able to work (and therefore earn income…), would that loss of income negatively impact your family and/or your standard of living?
Do you have family and loved ones that rely on you and who depend on you to provide an income for them?
If you said “yes” to any of these questions, then you need to act now!
What is the problem?
There have been significant increases in both the number of claims and the sums insured being paid out, which has seen losses across the life insurance industry. For instance, over the past 5 years, the industry has collectively lost around $3.4 billion, with $1 billion of that coming in the 12 months to September 2019, and directly attributable to retail income protection policies.
The fact is that income protection and other insurance premiums are not high enough to cover the volume of claims being paid out.
While it is tempting to “scoff” or sit back and think sarcastically ‘poor insurance companies,” the fact is that many of them are losing money and won’t be able to return a dividend to shareholders. This is a serious problem. If insurers keep losing money at this rate, the result could be insurers withdrawing from the market all-together and potentially even collapsing, leaving policyholders high and dry.
What is the government's solution?
To make sure that the retail income protection market remains viable, APRA has proposed several changes that include:
- For income protection policies issued after March 31st, 2020, agreed value income protection will no longer be available. This has already happened. If you have an agreed-value income protection policy (instead of indemnity), you cannot replace it with another agreed-value policy. This is similar to car insurance – with agreed value, you know what you will get, whereas with market value, you get your sum insured or what income you can prove (market value, if you will), whichever is less.
- For Income Protection policies issued from July 1, 2020, benefits will be based upon the insured person’s income over the preceding 12 months. Current quality coverage usually looks for the best 12 months in the proceeding
- The policy’s term cannot exceed five years. This means if you have a change in occupation (say you go into underground mining), past times (start jumping out of planes or racing motorcycles), or financials (business gets tough), your cover can be reviewed, causing premium changes or even potentially withdrawing the offer to provide cover at all. Because life is full of surprises, if you have any medical issues and your current provider no longer wants to cover you, you may find yourself on your own. This is the most important change!
How do these changes affect you?
Firstly, if you already hold a retail income protection policy, you will not be affected by these proposals.
However, if you are considering applying for income protection or making any changes to your existing policy, it is imperative to act now in order to avoid being affected by the changes.
We are very concern about the changes above as we believe that income protection insurance is the cornerstone of a financial plan. Especially if your income is important to you, you have a family or assets to protect in life or significant debt which needs to be protected.
What do you need to do?
If you think this may affect you or you are considering income protection insurance, you need to call to schedule a time and get it in place before the changes come into play in October. After this time, full-coverage income protection will not be available. This is also important if you are thinking of making changes or cancelling your existing cover. You may not be able to re-instate what you had in place after the October cutoff.
Once implemented, these will be some of the most significant changes to the personal insurance industry to date.
For more information or to see how this affects you call the office on 07 4659 5222.
After October, I’m not sure how anyone with an existing income protection policy is going to find alternatives without being disadvantaged.
