Income protection has been available in Australia for over three decades and has grown into a multi-billion dollar industry. However, the income protection industry has been hit by a total of $3.4 billion in losses over the last five years.
If you have previously owned income protection cover, have you realised that income protection premiums keep rising?
This is due to the competitive nature of the industry, which has created generous policy terms and benefits. As a result, there has been an increase in claims paid, which has created hefty losses and premium rate increases.
The Australian Prudential Regulation Authority (APRA) is now stepping in to mandate significant changes to ensure that the industry remains regulated and sustainable.
What is income protection cover?
Income protection ensures your ability to earn an income, which is arguably one of the most important things when it comes to assets. If you were to become injured or disabled, this cover would provide you with a portion of your income. This would be used to help support your family and lifestyle expenses as you recover.
Changes to Income Protection Cover
So, what are the changes that APRA is making?
Benefits will no longer be greater than 100 per cent of your earnings
The benefits will not exceed 90 per cent of your earnings at the time of claim for six months. After the six months, benefits will then be capped at 70 per cent.
No more guaranteed renewable policies
The agreed income protection cover will no longer be guaranteed until the age of 65. Instead, your insurer can revise the terms and conditions every five years. This gives them the power to increase premiums and make it harder for you to claim benefits.
When you receive a review after five years, this does not mean you have to undergo a medical review. However, your occupation, financial changes would be considered by the policyholder.
Insured income is to be based on your annual income
When you make a claim, the insured income will be based on your annual income at the time that you make the claim, instead of an agreed earning amount.
What does this mean for you?
These new rules by APRA will mean a reduction of overall payouts to people, thus making it more affordable for insurers.
If you already have an income protection policy that includes a ‘Guarantee of Renewability’ in the policy statement, and specifies the policy will be automatically renewed each year, your policy will not change.
If you do not have income protection, it may be time to consider getting it before 1 October 2021 as there will be less generous features after the new APRA changes are implemented.
Contact Wagtail Wealth today if you need any assistance choosing an income protection cover that is suitable for you, c