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Crystal Wealth Newsroom

Changes to income protection insurance: will you be affected?

Announcements

APRA has announced several specifications that require insurance companies to change product design features and pricing to ensure income protection can continue to be offered viably in the future.

The first change came in March 2020 when APRA stopped insurance companies from offering ‘agreed value’ policies.

These policies were typically established on a fixed amount based on a person’s salary/wage at the beginning of the policy.

Although these were generally slightly more expensive insurance policies, they offered certainty for workers with variable yearly incomes.

Agreed value policies will continue to remain valid if they were in place before 31 March 2020. Policies offered after this date can only be provided as indemnity cover.

New income protection policies from 1 October 2021 will only be indemnity policies and based on the past 12 months income at the time of claim.

Changing percentages of payments

A new addition to these policies will be income replaced at 90 per cent of salary/wage for the first six months of claim and then on a 70 per cent basis for the remaining claim period.

The insurer will assess your ability to perform your ‘own occupation’ in the first two years of being on claim. The assessment will be reviewed against the ability to perform ‘any occupation’ for benefits paid beyond two years.

Indexation of benefits will be set at current CPI levels with no cap on monthly benefits.

Where an insured person’s regular income excludes superannuation guarantee contributions (SGC), then SGC can be paid to the member’s superannuation fund in addition to the 90 per cent/70 per cent insurance benefits received.

Income Protection policies will be renewed every five years (or less depending on the policy). At renewal, a new insurance policy will be entered into, reflecting the new terms and conditions that the life company applies.

Premiums remain tax-deductible for income protection insurance, whether it is held personally or in a superannuation fund.

These new income protection insurance policy changes may impact existing policies if you should consider changing your level of cover (lower income or not working all the time) or changing employment/career.

Each insurance company offers slightly different policies and features (for example; rehabilitation benefits, advanced payments etc.), so your Crystal Wealth financial adviser can assess which policy is right for your needs.

We know people are more likely to claim on income protection cover than most other types of insurance, such as car, home or even life insurance.

If you do have income protection cover, but you haven’t reviewed it in a while, or if you hold cover in your superannuation fund, please get in touch with your Crystal Wealth financial adviser, who will be able to review the income protection cover that is best for you and answer any of your questions.

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