Major Changes to Income Protection Cover

By Norman Howe | More Articles by Norman Howe

From 1 October 2021, major changes will be implemented by APRA throughout Australia that will impact your income protection, regardless of your insurance provider.

It is vital you review your current income protection to know if you need to take immediate action to prevent yourself from being negatively affected by these new changes.

This note details not only what these changes will be, but what you should do depending on your circumstance.

What are the changes?

Benefit calculation method

From 1 October, the assessment of income prior to the date of disability is likely to become more restrictive, potentially only 12 months. This would have major implications, especially for business owners or the self-employed whose income has been impacted by the COVID-19 climate over the last year.

This is different from the current benefit calculation method that exists with those with agreements made before the change date, where policies are offered an indemnity basis giving you a choice of looking at your earnings up to three years prior to the date of an event causing disability.

Benefit calculation percentage

From the change date, the maximum income you can receive will be capped at 90% in the first 6 months with a maximum of 70% for subsequent periods, with it likely most policies offered after the date will be even less generous than this.

Contract terms

Currently most income protection products offered by financial advisers are guaranteed renewable and once begun the terms remain in-force. However, with policies taken out after the change date, you’ll be forced to readvise your insurer of your occupation, pastimes and career at determined intervals which may result in your cover and premium adjusted to reflect the changes in your circumstances.

Avenues to claim

Currently the top income protection policies offer multiple ways to claim against your policy but under new policies after 1 October, the definitions related to disability are expected to make these become more restrictive.


What should you do?

If you currently have an income protection insurance agreement – don’t change it. By sticking with your current agreement, you continue to have access to benefits and policy terms that will no longer be provided for new agreements after October 1st.

If you have experienced an adjustment to your health under your current income protection insurance – don’t change it. The new changes will negatively impact your avenues to claim with additional restrictions being placed on the definition of disability. If you change your current income protection, you will likely face higher premiums and be significantly harder to claim on your insurance.

If you are considering getting income protection insurance –  act immediately and commence your agreement before October 1st to obtain access to current policy terms and benefits that are soon to be greatly restricted in an effort to increase the profits and sustainability of the life insurance industry.

About Norman Howe

Norman Howe is the founder of Strat X Advisory and has been involved with wealth management for over 30 years. He primarily works with SMSF trustees, SME owners and family groups helping them achieve wealth-life goals. As a high-level adviser and strategist, Norman specialises in SMSF, business restructuring, Estate Planning and Wealth-Life planning.

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