Lock in Income Protection Insurance Before Terms Tighten
The benefit structure for Income Protection insurance policies is slated to be tightened further in 2021 as insurers seek to stem the billions of dollars the industry loses each year.
The latest proposed change will reduce the period of income history that insurers take into account when you make a claim.
It is proposed that new Income Protection policies will only consider the income earned in the 12 months prior to a life-changing incident that prevents you from continuing to earn an income. Existing policies look at the three years earnings prior to a claim.
If you do not have income protection, you may have until later in the year to lock in an income protection policy with the more favourable three-year term.
Income Protection insurance, also known as disability income insurance, can provide policy holders with replacement income when they are unable to work due to illness or injury. As it stands, it can protect a family financially in the event of debilitating injury or illness, providing a replacement income and allowing time for recovery without the added stress of mounting bills.
Three years versus 12 months may not seem like a huge difference but consider this; Covid-19 through 2020 has decimated earnings for many individuals. If you were to have an accident after such a period, your income protection policy would be paid at a rate based on an unprecedented, pandemic-driven 12 months of reduced earnings.
Likewise, taking time off for maternity or paternity leave, when income is shrunk, could also influence a pay out if there is a need to activate an income protection policy.
The Australian Government’s statutory authority, the Australian Prudential Regulation Authority (APRA) has summoned the life insurance industry to address concerns about the sustainability of individual Income Protection insurance.
APRA has been concerned about income protection insurance sold to individuals due to the leniency of claims. The industry has collectively lost $2.5 billion through this product offering over the past five years, with no signs of improvement.
As of 31 March 2020, APRA required insurers to cease the sale of Agreed Value Income Protection policies. New policies are based on Indemnity Value. This means the benefit value of your policy is determined by income at the time of a claim rather than being set at the time you take out the policy. This increases the risk of you receiving less of a pay-out than the insured benefit, if you are unable to provide undeniable financial proof according to the policy.
If you are thinking about Income Protection, talk to a Hood Sweeney Securities Life Risk Specialist about the policy options available to you. Call 1300 764 200 or email.
The information in this article contains general advice and is provided by Hood Sweeney Securities Pty Ltd 220897. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. Please refer to our Financial Services Guide, available here, for contact information and information about remuneration and associations with product issuers.