Disability Income Insurance (DII), commonly referred to as Income Protection, in Australia recorded a 1 billion dollar loss in the first 9 month of 2019, contributing to the total losses over the last 5 years to 3.4 billion dollars.

The Australian Prudential Regulation Authority (APRA) have proposed the following changes.

Changes in Income Protection March 2020 | What are the changes?

From 31 March 2020 the following changes to Income Protection policies will apply:

1. the sale of agreed value* contracts will cease
2. policies with fixed terms and conditions of more than 5 years are not to be offered
3. new policies cannot have benefits that exceed the policy holder’s income at the time of claim
4. life insurers are to ensure effective controls are in place to manage the risks associated with longer benefit periods

*What is agreed value? | Changes in Income Protection

1. When applying for a policy you can choose to prove your income at application time and therefore you will be relatively assured you will receive your benefit.
2. Under the new regime you will be required to prove your income at claim time, as well as every 5 years.  If you have a substantial decrease in your income then you will either receive less than your benefit or be forced to reduce the monthly benefit every 5 years.
3. The good news if you have a policy in force now, it is grandfathered from the new rules.

Why has Income Protection changed? | Changes in Income Protection

Over the past five years through the sale of Income Protection policies to individuals, Life companies have lost around $3.4 billion. The Australian Prudential Regulation Authority (APRA) wrote to the industry in the first half of 2019 to address to problems urgently. Since this letter, insurers have reported further losses of $1 billion, prompting APRA to escalate its response.

Now is the time to take up or update your Insurance Protection

We can appreciate this is a landslide change in the Life Insurance landscape and it’s important to have a conversation now, as it will take time to apply for and establish it.

We would welcome the opportunity to assess how these changes impact you and your personal circumstances by having a chat with one of our insurance experts.

If you are interested in taking out a policy or you have a policy that has not been reviewed for a long time, please get in touch and we can discuss how we can help you.

The post Changes in Income Protection | 31 March 2020 appeared first on Quill Group | Business Accounting, Financial Planning & Superannuation.

Here, we’ll take you through the fundamentals of diversification and a little look into the value it provides.

Firstly, how does diversification work?

Having a diversified portfolio doesn’t mean you are guaranteed to be protected against losses or guaranteed to have gains. It simply means you have a strategy in place to effectively manage the risk and reward trade off to help you achieve consistency in your returns over time.

For many reasons, the markets for different asset classes peak at different times and they don’t particularly move in exactly the same way. Different asset classes react differently to what’s happening in the economy and world around us. While one market can experience a surge, another can be on a downhill run.

To manage this risk, financial experts believe you should spread your funds across several markets. This may potentially offset any losses from a market downturn in one asset, by gains from another market that is performing better at that time. Spreading your funds across a number of different investment types means you will be well diversified and have limited your exposure to any single asset. In turn, your overall returns will be less volatile.

What constitutes as a diverse portfolio?

To diversify your portfolio, you need to invest across different asset classes. This should include a mix of growth assets and defensive assets:

Growth Assets

Investments that have a higher risk and reward – include investments that generally provide longer term capital gains such as shares or property.

Defensive Assets

Investments that have a lower risk and reward – include investments such as cash or fixed interest.

More characteristics of a diversified portfolio are:

• Investments are across different asset classes such as cash, property, fixed interest, Australian and international shares.
• Different types of investments are within asset classes. For example, having shares across different industry sectors.
• Investments are across different fund managers. Applicable if investing in managed funds.

EXAMPLE: Diversification inside a particular asset class

Just to show you as an example, the below graph shows how different sectors of the Australian share market have performed over time. You can see that some sectors are more volatile than others.

Sectors of the Australian Sharemarket

Source: Australian Securities Exchange and Thomson Reuters 2013

The benefits of diversification

There are three main benefits to having a diversified portfolio:

Minimising risk of loss 

As explained above, diversified portfolios have less risk than concentrated portfolios. If one investment performs poorly over a certain period, other investments may perform better over that same period. This reduces the potential losses of your investment portfolio.

Generating returns

We all know that sometimes investments don’t perform the way we expected them to. So, by diversifying your portfolio, you’re not merely relying upon one source for income. It also allows you to add riskier types of investments to your portfolio without increasing your overall risk levels.

Preserving capital

Some investors are not in the accumulation phase of life and are closer to retirement. These investors have a different set of investment goals which are oriented towards preservation of capital vs driving returns. Diversification can help protect their savings by reducing the overall risk in their portfolio.

Creating a portfolio for you

As you can see above, diversifying your portfolio can be beneficial but complicated. It depends on a host of factors including your appetite for risk, investment objectives, time frame and available capital. It requires a strong knowledge of the various asset classes, markets and sectors to ensure it is executed effectively.

To get the best results and create a portfolio suited to your particular needs and circumstances, it might be wise to talk to one of our financial planners.

The post The Importance of Having a Diversified Portfolio appeared first on Quill Group | Business Accounting, Financial Planning & Superannuation.

So, today I thought I would give you a snapshot of some of the issues which have been raised and what can be learnt from these events.

TONY GREIG’S CLAIM

The first article which came to light a few weeks back and highlighted again on the Project was Tony Greig’s (Cricket great and channel 9 commentator) insurance claim with Comminsure.

What you need to know:

Tony was diagnosed with cancer and was paid his trauma claim (about $600k) and I can only assume this claim was paid without question.    The issue arose when Tony passed away 10 weeks later. The estate made a claim for the death proportion of the insurance policy.  When considering insurance it is very common for insurance to be recommended as a bundled policy (death, TPD and Trauma together).  The advantages of this are to reduce policy fees and to minimise the impact of premiums.  However, the negative to this is if a claim is made on the TPD or the Trauma portion the other covers reduce by the amount of the first claim. The option for ‘buy-back’ of the death cover is often an extra cost option, and many people often opt out of that extra cost.  Was Tony Grieg offered the buyback? Did he understand it? We don’t know because he is not here to tell his side of the story.

FOUR CORNERS ON COMMINSURE

On Four Corners (Monday, 7 March 2016), there was another report regarding Comminsure and a culture of denying claims.  There were some explosive claims in the report about documents being deleted, doctors changing their minds etc.  I am not going to discuss this because if it is found to be true, it is unethical, immoral, and fraudulent.  From my perspective (once again, if this is true), I hope the regulators come down hard!  However, none of these facts have been proven and I think it is best to steer clear of the allegations.

What you need to know:

Claimant One

• A man who suffered what seemed to be a serious heart attack and had to be resuscitated.
• He had a sizable insurance policy with Comminsure and he made a claim that was rejected on the basis the definition of a heart attack in the Trauma policy he owned was not met. At the end of the article even after this being aired on Four Corners Comminsure have still refused to pay this claim. Unfortunately based on the strict application of the definition within the policy the insurer is within their rights to reject the claim.

Fact (not discussed in article), up until about 2012, all insurers used the same definition for a Heart Attack.  There are still insurers in the market place today who have not adopted the new definition.

Claimant Two and Three

• The other people in the article were a TPD claim and a Terminal Illness claim. It is important to note that these policies were received by being a member of an industry super fund and I do not believe the members actually applied for the cover. With regard to the TPD claim, I think there are two issues here. It seems the member was given internal medical advice to resign from her position and then the same doctor indicated she was not eligible for a claim. This comes down to definitions.  For example the definition for which she was claiming on within the super fund was:

“must be permanently incapacitated to such an extent as to render him or her unlikely ever to engage in any gainful occupation, business, profession or employment, for which he or she is reasonably suited by education, training or experience.”

8 THINGS TO HELP YOU AVOID THESE SCENARIOS

The purpose of this blog is to provide you with information on what can be done to try and avoid such a scenario (there are many more issues but we could be here all day)!!

1). Buyback Option

With insurance cover, some companies offer a Buyback option for the death cover and this can reduce the 12 month period down to 14 days in some cases.  This comes as an additional cost.  Please note some insurance policies do not have a Buyback option at all and the death cover will never be reinstated.

2). Review the level of cover or separate the cover

Review how you have calculated the level of cover and see whether you really require the death and the TPD payments if both occurr (obviously TPD has to happen first). Alternatively, hold a standalone Death policy and a standalone TPD policy.

3). Trauma Insurance Consideration

Consider Trauma insurance with partials and a policy that will receive upgrades.  This means sometimes insurers improve definitions and, therefore, your policy will always be updated.

4). Obtain advice

I know…this is obvious but 100% true. The right advice will mean you save yourself (and your family) headaches in the future.

5). Review your policies regularly

The Life insurance landscape has changed so much over the years and will continue to change. Legislation changes and these articles can always lead to improvements.

6). More comprehensive definitions

With TPD cover consider an insurance policy which has a more comprehensive definition.  In the industry, this is known as an OWN occupation definition.  This may not be available to all persons but certainly something worth investigating.

7). Consider obtaining Income Protection cover

There is no doubt that TPD insurance can be a difficult policy to claim on because you have to be assessed to be permanently unable to work again.  My recommendation would be to also consider owning an Income Protection policy.  The disability definition in an Income Protection policy is generally much broader and provides the insured to claim more easily.  I would estimate in a majority of all the cases above an Income Protection payment would have been made to the insured.

I think what can be learnt from all this is you need to seek advice regarding your current policy and what will happen in certain events.  Unfortunately, in the Australian life insurance industry, not every policy is the same and they are all structured differently.  This can be a legacy issue with the insurance company or it can be something that the insurance company uses as a marketing tool to differentiate themselves.

If you do need assistance, don’t hesitate to get in contact with me or any of our insurance specialist.

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