Impending Changes to Income Protection Cover
– Should you act now to lock in more comprehensive benefits?
Income Protection is sometimes known as known as ‘Salary Continuance Insurance’ or ‘Disability Income Insurance’, income protection provides a portion of your income, if you are unable to work due to injury or sickness for a certain period of time.
- What is income protection?
Income protection provides a portion of your income, for up to 75% of your annual salary, if you are unable to work due to sickness or injury and can be paid after a waiting period and for a certain period of time. The waiting period is the time you must wait from when you suffer an event, to the time you become eligible to start receiving payments. The payment period is the period you can be paid so long as you remain unable to work. Other terms and conditions can apply depending on the policy, with all of these factors affecting the level of premiums you pay.
- Why are changes being made?
Recently, the Australian Prudential Regulation Authority (APRA) announced their concern that life companies have been keeping premiums at unsustainably low levels thus potentially effecting the company’s long term financial sustainability. APRA have signaled their expectation life companies must review and update their product offering with a focus on long term sustainability, whilst ensuring products continue to meet the needs of consumers.
- Have any changes been made?
Yes, effective from 31 March 2020, insurance companies have stopped providing ‘agreed value’ policies that are based on the income you advise at the start of cover, regardless of any subsequent change in income. This means no more ‘agreed value’ contracts can be bought or sold after 31 March 2020.
- What other changes have APRA announced?
With effect from 1st of October 2021, APRA expects that life companies will offer new income protection contracts where:
- The insured income is to be based on your annual income at the time you make a claim and are not able to look back more than 12 months.
- A maximum income replacement payment of 90% can be made in the first six months and 70% thereafter, with no limit on the monthly benefit.
- A maximum payment period of five years, with a right to renew cover.
- Insurance providers must have adequate risk management processes in place to mitigate the risks associated with long term benefit payment periods.
- What happens to existing policies?
If you have an existing retail income protection policy which include a ‘Guarantee of Renewability’ in the policy wording, that is, the policy is automatically renewed each year, your policy will continue with no changes.
- What should I do now?
If you would like to lock in the current beneficial terms and conditions, we suggest you meet with one of our financial planners as soon as possible le to put in place a policy that.
- Is guaranteed renewable.
- Ensures the full amount of income for the benefit period selected.
- Has a payment period up to age 65 (depending on your occupation).
- May offer you a tax deduction this financial year if put in place before 30 June 2021 and each year thereafter.
If you have an existing policy that needs reviewing now is also the perfect time to meet with us to ensure you retain the above benefits.
If any of the above applies please contact us on firstname.lastname@example.org to arrange an appointment with one of our qualified financial planners based in Canberra or Brisbane. Online appointments are also available for your convenience.