The Australian Prudential Regulation Authority (APRA) will enact a series of substantial changes to Income Protection Policies from October 2021. As APRA looks to stop the haemorrhaging of billions of dollars in the industry, the ramifications are sure to be felt by the majority of policy holders across the board. At the very least, it is important for each policy holder to understand this landmark moment and how it may affect their cover and ability to claim in the future. Below lists the major considerations and how you can best continue, change or modify your policy to optimise your cover.
Agreed Value Policies Will Be Removed
These policies traditionally referred to the estimated payout based on your stated income at time of application. These policies assisted contractors, self-employed or other arrangements that were subject to fluctuating incomes. Moving forward, indemnity policies will have to suffice. This means the claim amount will be based on the income at the time of the claim (often averaged over the preceding 12 months) as opposed to the income at application.
Guaranteed Renewable Policies Are No Longer Mandatory
This gives your insurer the ability to change the agreed terms of your policy every 5 years instead of perpetuating the terms and conditions agreed upon at time of acceptance. Although it may seem like a direct route to increasing premiums, trusted and reputable insurers will always send an invitation for renewal. Trusted and leading-edge insurers, such as Aspect Underwriting, will strive to ensure a level of consistency and reliability in their policies is ongoing. Although guaranteed renewable policies are no longer mandatory as of October 2021, Aspect Underwriting will continue to work closely with their policy holders to ensure the best value solution to their income protection policies and attempt to mirror previous arrangements.
The Definition Of “Disability” Is More Strict
This is specific to longer-term benefit periods. For instance, when looking at Total or Partial Disablement, if the insured person is able to return to work in a reduced capacity but declines to do so, trusted insurers, such as Aspect Underwriting, have stated in their Product Disclosure Statement that “the benefit payable will be reduced to 25 per cent of the total disablement benefit per week”. This gives policyholders the option of taking more time to recover. However, in relation to the new changes made by APRA, this could potentially mean a lower percentage of the benefit is paid by other insurers.
Financial services aggregator site ‘finder.com.au’ have put forward an example to help you understand one of the more likely scenarios to occur from the changes.
“Let’s say you’re self-employed and are earning $50,000 a year, and after 1 October you take out a new policy up to the maximum of 75% of your wage. When it comes to claim time, if you’ve not, in fact, earned that $50,000 per year recently, you may not be able to claim on that level – even though you’ve been paying for it.”
As APRA is the overarching body that can enact changes across the whole income protection industry, no one company is immune to the changes in October 2021. It’s more important than ever to speak with a trusted and personable company that can offer full transparency and up to 85% coverage of your income. Aspect Underwriting are industry leaders and will walk you through the changes and how they will affect your situation.