Significant changes to income protection insurance

Changes to income protection insurance may impact you after 1 October 2021. OR

Act now, before 1 October 2021 changes to Income Protection Insurance impact you.

New government regulations have been introduced that will reduce the benefits available on new income protection policies after the 1st of October 2021.

If you currently have a personal income protection in place, or can get one in place before the 1st of October 2021, it may include a number of supplementary (and potentially very valuable) benefits.

From October 2021, these extra benefits will not be available on new polices, due to the changes mandated by the Australian Prudential Regulation Authority (APRA). There are several reasons for these changes, with the predominant reason being to make income protection insurance more affordable to more Australians.

The changes include:

  • Available benefits in the first six months of a claim cannot exceed 90% on your income. This compares poorly to current policies offering a range of supplementary benefits which can double this possible benefit in some cases or circumstances.
  • After the first six months of benefits, this drops to a maximum of 70% of earnings. This is a 5% reduction compared to the previous 75% maximum available.
  • Benefits will only be based on the last 12 months of earnings, if you have a predominantly stable income. Previously some policies allowed you to look back 2-3 years and make the best 12 month period the basis of your claim. This means your income will be calculated on the last 12 months of income only. This is very relevant given the turbulent period we are still in and the impact this has had on income stability for certain occupations.
  • Long benefit periods will be impacted, and will be strict to maintain a motivation for policy holders’ return to work. This may mean stricter disability definitions for longer benefit periods. This may also include changing from ‘Own Occupation’ to ‘Any Occupation’ definition after 2 years on claim.

There is also another measure to be implemented by 1 October 2022, which will mean policies will need to be renewed and updated every 5 years, compared to age 65 for current policies.

Few insurance companies have released the products they will be making available to interested clients wanting insurance after 1 October 2021.

If having a better-quality income protection insurance policy is important to you, please contact us as soon as possible. Waiting until after 1 October 2021 could mean losing out on the current policies available to you today with significant additional benefits.

The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional.
We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.

Posted in Insurance.