Finding income protection that doesn’t break the bank and gives you a suitable level of cover is no easy feat – but for many Australians, it’s about to get a lot harder.
Who will be affected by these changes?
- Sales/Commission Based roles
- Have large Bonuses that you rely upon
If you describe your working situation as any of the above (or are looking to make a change in the future to any of the above), these changes directly affect you – and if you don’t act before 31st March 2020, you will miss out forever.
Why are insurance policies changing?
Over the past five years, the individual disability income insurance (IDII) industry collectively lost more than $3.4 billion, causing the Australian Prudential Regulation Authority (APRA) to intervene by announcing a number of important changes in late 2019.
To ensure the industry remains sustainable, one of the APRA’s decisions was to effectively ban ‘agreed value’ policies as of 31 March 2020.
What are agreed value policies?
There are two main types of income protection policies:
- Indemnity contracts
You don’t need to provide any evidence of your earning upfront. You only need to prove your income if you are making a claim.
- Agreed value contracts
The insured amount is based on your earnings when you applied for the policy, rather than when/if you make a claim.
Agreed value contracts mean that if you change to a lesser-paying job in the future, you will be able to claim based on your old job’s pay.
For example, a business owner that experiences a record profit for the year can apply for insurance based on those high profits under an agreed value policy. The policy holder can then claim based on the agreed value income, regardless of whether the businesses profits have decreased after taking out insurance.
As mentioned earlier, agreed value policies will no longer be offered to new customers as of 31st March 2020.
With agreed policies no longer in play, individuals will have to take up indemnity contracts instead, meaning they will have to claim on the income they received from the past 12 months.
Along with the work types listed above, these changes can also greatly impact individuals in between jobs or those taking unpaid annual leave or maternity leave.
If you currently hold an agreed value policy, there’s no need to worry – insurers are honouring existing contracts, with the changes only affecting new customers.
What should you do next?
If you’d like some clarity on whether these changes will affect you, book in a time for a quick chat with an Advisor here or via the button below. Our team are happy to run through any questions you may have and can let you know what to do next.