Income Protection insurance pays a monthly benefit (during your benefit period) while you cannot work due to sickness or injury. It helps support yourself and your family by covering a share of your income during that time. If you currently have Income Protection insurance and are thinking of switching – or are in the process of considering taking out cover – there are some new changes to know about.
In 2019 the Australian Prudential Regulation Authority (APRA) found that Income Protection products (also known as Individual Disability Income Insurance) offered by life insurers had resulted in the industry losing around $3.4 billion over five years, threatening its longer term viability in Australia.
APRA was concerned that insurance companies often increased their premiums when faced with higher-than-expected claim costs, which could result in cover becoming unaffordable and unsustainable over the long-term.
To deliver better outcomes for customers, APRA advised all life insurance companies to implement certain changes from no later than 1 October 2021. These included ensuring benefits do not exceed the policyholder’s income at the time of claim, and ensuring effective controls are in place to manage the risks associated with longer benefit periods (for example, policies paying benefits for any length of period up to age 65).
In addition to these measures, APRA expects companies to design and manage Income Protection products with certain overall objectives to better meet the needs of consumers. These include clear and objective criteria for claims eligibility; providing policyholders with improved certainty of coverage and premium stability; and being financially viable over the long term.
The impact on customers
Life insurance companies have developed solutions to meet the new regulatory expectations, while still aiming to meet the needs of customers. Consequently, there is now greater variation in the Income Protection insurance products available and more variability in cost. Indeed, customers may now find it more difficult to choose the best option for their situation.
Income Protection policies purchased prior to 1 October 2021 are not impacted, however, you may wish to review your insurance cover given the products now available and care is needed in considering whether a newer product meets your needs. People may find their existing product is appropriate for them.
Insurers have now developed different product features and terms and conditions to better manage the risk of longer benefit periods – this is something to be aware of when looking to start or change a policy. Also, some of the benefits and features previously available have been replaced, reduced, or removed, to ensure income protection benefits do not exceed the insured person’s pre-disability income.
Overview of key features and benefits
Here is a brief summary of some of the features of Income Protection cover available from 1 October 2021 (note that these may vary depending on the life insurer).
Indemnity Value vs Agreed Value: All new Income Protection products now offer Indemnity Value cover and provide a monthly benefit based on a percentage of your income as at the time you make a claim. Since 1 April 2020, insurers can only offer Indemnity Value policies to new customers. Old policies purchased before this date can be continued to be held, but new policies, even for existing customers, must be Indemnity Value policies. Agreed Value policies (that is, one where the amount you’re insured for is a percentage of an agreed amount when you take out the cover) can no longer be sold.
Monthly Benefits: Monthly benefits are payable after the waiting period if sickness or injury means you need to stop working. Benefits are payable for the benefit period that applies to your cover and are only payable while you are unable to work (or, in the case of benefits for partial disability, while you are able to perform only limited work or duties and suffer a reduction in earnings beyond a certain threshold, generally speaking). You will be assessed on your inability to perform work duties. The criteria of this assessment will vary between insurers and may change after a certain period of time ‘on claim’.
Percentage of income you can insure: The maximum amount of income that you can insure tends to range from 60% upwards (depending on the insurer and the product they are offering), over different benefit periods, depending on the product. Most products tend to offer several benefit periods. A sliding scale may also be applied. For example, higher portions of someone’s income may only be insurable at a reduced percentage. You can also choose to insure a lower amount, depending on your personal needs.
If your insurable income has reduced since you bought your policy, it is likely the monthly benefit you receive in the event of a claim could be less than the benefit you would receive based on the original sum insured. Alternatively, if your insurable income has increased and you have not updated your sum insured to reflect this, the monthly benefit you receive in the event of a claim will not reflect the increase. It is important to regularly review the suitability of your sum insured and contact your insurer to apply to amend this, if required.
Waiting Periods: You will typically have a choice of waiting periods before a benefit is paid – for example, with NobleOak’s income protection cover (which is called Disability Income Insurance), waiting periods of 30 or 90 days are available.
Choosing insurance that’s right for you
There are numerous other policy considerations that you should consider, including benefit period length, cover suspension (premium pause), and inflation protection. You should also consider whether the cover offered by an insurer includes benefits related to recovery at work, rehabilitation program expenses, vocational transition programs, and monthly superannuation payments.
The choice of insurer matters, and the reputation of your insurer and its services should be taken into account. For example, should the unfortunate happen, NobleOak provides a personalised claims service with dedicated case managers to help support you through your recovery.
“The choice of insurer matters, and the reputation of your insurer and its services should be taken into account.”
Get a quote
Noble Oak is the Australian life insurance partner of the CA ANZ Member Benefits Program and provides exclusive benefits to CA ANZ members. To get a Life Insurance quote visit www.nobleoak.com.au/charteredaccountants. You can also call one of NobleOak’s friendly team members on 1300 041 494 and mention ‘CA ANZ - Chartered Accountants’.
Important information – The Target Market Determination for NobleOak’s Premium Life Direct insurance is available on our website www.nobleoak.com.au/target-market-determination
NobleOak Life Limited ABN 85 087 648 708 AFSL No. 247302 issues the products. This information is of a general nature only and does not take into consideration your objectives, financial situation or needs. Always consider the Product Disclosure Statement (PDS) (available on our website) to see if the product is right for you.