What Is Income Protection Insurance?
Also known as ‘salary continuance insurance’ or ‘disability income insurance’, is designed to protect you should you become unable to work.
Income protection provides a portion of your income, for example, 75% of your annual salary, if you are unable to work due to injury, disability or sickness for a certain period of time. When you take out the cover, you need to advise your insurer of your annual income.
Income protection policies have a waiting period and a payment period. The waiting period is the time you must wait from when you make a valid claim, to the time you are able to start receiving payments. The payment period is the period you can receive payments while you remain unable to work. Other terms and conditions apply depending on the policy. The waiting period, payment period and other factors affect the level of premiums you pay.
What are the changes?
Recently, the Australian Prudential Regulation Authority (APRA) announced that it is concerned that insurance companies in Australia have been keeping premiums at unsustainably low levels to compete for customers. APRA also thinks that some policies have very generous benefits and terms that, in some cases, provide a financial disincentive for people to return to work after successfully making a claim.
Has APRA announced what changes will be made?
Yes, effective from 31 March 2020, insurance companies must:
- stop 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’ policies can be purchased or sold after 31 March 2020.
What other changes are likely to be made?
Other changes, effective from 1 July 2021, include:
- your 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
- limits of 100% of income replacement payments can be made in the first six months and 75% thereafter, with a maximum limit of $30,000 per month
- 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.
APRA is seeking feedback on the above changes from the industry by 29 February 2020 and will make a final decision by 30 June 2020.
What Will Happen to Existing Policies?
If you have an existing retail income protection policy which includes a ‘Guarantee of Renewability’ in the policy wording, that is, the policy is automatically renewed each year, your policy will continue.
Are Policies Which Meet APRA’s New Expectations Available Now?
No, to purchase an income protection policy that is consistent with APRA’s changes we need to wait until the insurance providers have issued new policies with new Product Disclosure Statements.
For more information, please read APRA’s media release or call on 1300 78 55 77 to discuss how the changes will affect you.
Read our original post on changes to income protection insurance here.
Don’t have income protection insurance already? Get a quote before the changes begin.