A change to income protection insurance you may have missed
There’s been a fair bit of news to digest of late, so we don’t blame you if you missed a recent change in the life insurance industry.
If you’ve been thinking about taking out income protection insurance, it’s a change you’ll want to know about because as of March 31, 2020, Australian insurers are no longer offering ‘Agreed Value Income Protection’ policies.
The adjustment was first proposed by the Australian Prudential Regulation Authority (APRA) back in December 2019 as one of a number of measures put forward to attempt to address the ongoing losses being made by insurers on income protection insurance products.
As a result, insurers will now only be able to offer ‘Indemnity based Income Protection’ going forward. What’s the difference you ask?
“Agreed Value Income Protection uses your income at the time of application as the basis to assess the amount payable for any claim you may make in the future,” said Anthony Brown, CEO of NobleOak Life.
“The other, more sustainable type of Income Protection is Indemnity based Income Protection, which uses your income (usually the last 12 months immediately before claim) to assess how much you will get paid at time of claim.”
That means the change is likely to largely affect self-employed workers whose incomes fluctuate greatly from year to year.
Will the new measures impact existing policies?
In short, no. The change only applies to new policies, so existing policies will be unaffected. In fact, depending on your insurer, you may have only been able to take out indemnity based income protection insurance anyway.
For example, NobleOak has always offered indemnity style Income Protection insurance which means that, if you were to make a claim, you would be eligible to receive up to 75% of your income earned in the 12 month period immediately before the claim.
Typically, the amount payable is subject to a maximum which is a percentage of your income at the time of application.
“As an insurer we are pleased that our Income Protection product did not need to be updated as we have always offered Indemnity style Income Protection and not Agreed Value," said Brown.
“NobleOak’s Income Protection cover is fully underwritten, which means your health and lifestyle is assessed through a series of questions at the point of application, and in some instances, a medical is also requested. This means that there is more clarity, and no surprises in the event that you make a claim.”
“Also, the important thing to know is that your cover with NobleOak is guaranteed renewable until the cover expiry age. As long as premiums are paid when due, if you already have cover with us we cannot change the terms and conditions to make them worse for you.”
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