Recently APRA announced major changes to the structure of Income Protection policies. It will occur in a matter of weeks and is not receiving any publicity in the mainstream media so we felt this update was important so that you can make an informed decision.
What is Income Protection?
Income protection is an insurance policy that protects your most valuable asset when you are working – ie. the ability to earn income. If you get injured or ill, income protection will pay you 75% of your income until you able to get back to work.
What are the Changes?
- “Agreed Value” benefit cover will cease. An agreed value benefit amount is where you confirm your ‘income’ at the time of commencing the policy and it’s locked in – generally for the life of the policy. It’s an important feature of income cover, particularly if you have income that goes up and down which is common for self-employed contractors, tradies, business owners, etc. All future policies are therefore likely to be an indemnity type contract, meaning that you will prove income at the time of claim (not when you apply for the cover). If income is variable, the risk arises that at the time of claim you may have had a poor year of income and unfortunately, the benefits payable will reflect this.
- New policies are unlikely to continue offering guaranteed benefits to age 65. Currently, the majority of Income Protection policies sold have long benefit periods, typically to retirement age ensuring you have maximum protection in the event of long term disablement. APRA has not offered exact wording for this change however indicated that there will be initial guarantees for 5 year maximum terms with potential extension of the benefit periods after that by the policy owner.
- 75% of income will be the maximum benefit amount payable. Currently, policy owners may choose to add-in benefits such as superannuation contributions, car allowances etc that may boost the sum insured to a level higher than the typical 75% benefit amount. This will cease for new contracts issued and a maximum of 75% of the income received in the preceding 12 months is expected to be the new standard benefit amount.
When will the changes occur?
The first changes commence 31st March 2020. Get in touch with the Centra Private Wealth team on 08 8231 4709 if you wish to review your insurance.
