Changes in Income Protection will take effect from 31 March 2020.
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:
- the sale of agreed value* contracts will cease
- policies with fixed terms and conditions of more than 5 years are not to be offered
- new policies cannot have benefits that exceed the policy holder’s income at the time of claim
- 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
- 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.
- 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.
- 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.