Personal Income Insurance Update

On 2 December 2019, the Australian Prudential Regulation Authority (APRA), the regulator for life insurers in Australia, launched an intervention into the insurance market in response to substantial ongoing losses on income protection insurance. APRA proposed a series of measures requiring insurers to address policy design and pricing to improve the sustainability of the income protection market.

What’s Changing?

Effective from 1 April 2020 you can no longer have an Agreed Value Income Protection Insurance Policy.  There will only be Indemnity contracts issued from this date. This means you have to be able to prove what you are earning at the time of claim.  If your earnings do not support the Monthly Benefit you are insured for, you will not be paid the full amount.

Under the proposed measures, there are going to be more changes to Income Protection Insurance effective July 2021 where some existing ancillary benefits will no longer be available through an Income Protection policy.  Examples of these are:

• Day One accident cover

• Nursing Care Benefit

• Death Benefit

• Specified Injury Benefit

• Critical Conditions Benefit

Other potential changes could be:

• At claim time, your benefit amount will be based on income no older than 12 months

• Limit Monthly Benefits to $30,000

• Restrict guaranteed renewability to 5 years. There will be a right for the policy owner to elect to renew the contract for further periods (not exceeding 5 years) without a medical review on the terms and conditions applicable to new contracts that are then on offer by the insurance company. Changes to occupation and financial circumstances should be considered on renewal.

• Other measures to control the risk of benefit periods greater than 5 years e.g. applying stricter disability definitions.

The changes will go through a consultation process between APRA and the industry so there could be variations of these measures.

Currently the only change to Income Protection Insurance is they are all Indemnity based, the ancillary benefits are still available.

We expect insurers will begin implementing changes for new policies over the coming year.  As a result, we strongly support getting appropriate cover in place sooner rather than later.

If you have any queries, please give us a call.

As this general advice has been prepared without taking account of your objectives, financial situation or needs, you should consider the appropriateness of this advice before acting on it. If this general advice relates to acquiring a financial product, you should obtain a Product Disclosure Statement before deciding to acquire the product.