Income Protection Insurance

Greetings, Rob here,

Some big changes are happening in Insurance land. I know  Yawn…  No, really these are Big and I reckon Very Bad.

First question…Do you have Income Protection Insurance?  if not you are affected.

So there are changes to Income Protection (IP) Cover in Australia which comes into effect as of 31st March 2020 (that’s next month)
From that date, Agreed value IP policies will no longer be available for new applicants.
All new income protection policies will only be Indemnity Value policies.


What’s the difference between agreed value and indemnity value and what’s the problem?

  • Agreed Value Income Protection This is our preference and the only IP contract that we recommend.

An agreed value contract means that upon applying for your income protection insurance You are required to prove your income to support the level of insurance you are applying for. The insurer agrees to a benefit based on this at the time of application. This insured benefit is guaranteed for the life of the policy. And in the event of a claim, your agreed benefit will be the amount which is paid to you.

  • Indemnity Value Income Protection

An indemnity value contract means that upon applying for your income protection insurance. You are not required to prove your income at that time. The amount of insurance applied for is based on your own calculations (which should consider your current earnings). In the event of a claim, you will then be required to provide proof of your pre-claim earnings (prior to your disability).  The benefit payable by the insurer to you will be the lesser of either; your sum insured, or 75% of your pre-claim earnings. This means that if your immediate income has reduced since your policy commenced, you may not receive the full value of your insured amount. The ripoff…Even though you have paid money for a certain amount of insurance coverage, no refunds happen if the benefit payable on a claim is less than your insured benefit. The insurance company keep the balance.

Is this going to affect you?

Question… Who is going to be the most affected? Those individuals that experience a variation in the income from year to year, they may be contractors, those in the gig economy, small business owners, and those working in cyclical industries such as Mining, piece workers. And of course, those who just want to take a year off and travel or put work on hold for any other reason.

Why are these changes happening?

These changes have come as a result of APRA*, getting concerned with the associated long-term risks with Income Protection claims and wants to improve the sustainability of Income Protection Insurers. This is as a result of both the number of income protection claims and the average length of claims has increased over the years, which may affect the sustainability of income protection policies and the ability of insurance companies to pay claims going forward.

 What does this mean for you?

If you do not already have an Income Protection policy in place, now is the time to review your circumstances. If you need to cover your income if you find yourself unable to work due to illness or injury. Consider the options. You will still be able to obtain an income protection policy after 31st March 2020, but any agreed value cover will be gone. The only options available after that are based on your income immediately prior to your disablement (indemnity).

What if you already have an agreed value income protection policy?

Agreed value policies currently in force will be retained. These changes are only applicable to new policies from 1st April onwards.

Call us if you want to discuss any of these details. Importantly, if you are OK, then think about forwarding this on to anyone that works and who doesn’t have any IP cover.]

*APRA media release: Sustainability measures for individual disability income insurance, 02/12/2019.



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