Four upcoming income protection changes you should know about
Current income protection products are generous, and as a result, insurance companies are losing money. APRA (The insurance regulator) has stepped in to create rules to make insurance policies taken out after 1 October 2021 more sustainable. This means that insurance policies taken out before 1 October 2021 are likely to be better quality policies than covers taken out after the changes.
Here’s a brief overview of the proposed changes to income protection that are likely to occur from 1 October 2021. Check out the podcast episode we did with My Millennial Money on this topic.
1. Claim amounts assessed differently
Currently, many income protection policies look back over your last 2-3 years of income to identify the highest income year. This determines the level of income protection your insurer pays in a claim. This means that if you’ve taken time off work in the last 12 months to have a baby or travel, for example, you may still receive your full insurance benefit. After 1 October 2021, insurance companies will only consider the income you earned in the 12 months prior to claim. This means that if you haven’t worked for a period of time during the past year, you may not receive your full insurance benefit amount. This small change can amount to thousands of dollars difference over the life of a claim.
2. Maximum benefit allowed too be reduced
Currently, many income protection policies can pay you up to 75% of your gross income (including super) for the life of the claim. We’re expecting the proposed changes to pay 75% of your income for only the first six months. After 6 months, the benefit amount drops to 60% of your gross income (including super). If you’re on a long term claim, this can make a big impact.
3. The contract term is changing (coming in Oct 2022)*
Currently, an insurer cannot change your policy terms and conditions. This means that if you were to change your occupation from an account executive to a chef, for example, your income protection premiums will not be affected. After 1 October, the insurer has the ability to reprice your premiums and adjust the terms of your policy if your occupation changes. .
*As of 12th May 2021 APRA has extended this change to come into force from 1st Oct 2022
4. More difficult at claim time
The definition of disability is expected to change. Currently, many income protection policies can pay out if you are unable to do your job. After 1 October 2021, your income protection policy is likely only pay out if you are unable to do any job after the first two years of claim. This could significantly impact your ability to stay on claim long term.
If you’re considering income protection, there has never been a more crucial time to get this in place. Insurance applications do take time – so please don’t wait until the last minute to reach out.
If you have default income protection through your super fund, these changes will likely still impact you – even if they were put in place before 1 October 2021. Chat to a financial adviser about getting your own retail income protection policy in place before these changes kick in.
If you’ve already got a personalised retail income protection policy in place, hurray! These changes won’t affect you as long as you keep paying your premiums. If you’re unsure, or you need to make changes to your policy, speak to a financial adviser as soon as you can.
Note: If you’re reading this after 1 October 2021, you can still get income protection, and it is still bloody important. Give us a call.
Disclaimer: Note all the changes have been finalised by APRA or the insurers so are still subject to change.
