From 1 April 2020, APRA are implementing sweeping changes to Income Protection Insurance. This is a result of the various governmental reviews relating to the financial services industry as a whole (including the Financial Services Royal Commission last year).
It is important to REVIEW YOUR INCOME PROTECTION INSURANCE ASAP, before time runs out. Some clients already have existing Income Protection Insurance policies, so please check those and send us any queries that you may have. For those clients who have been considering Income Protection Insurance, you should do so NOW.
We summarise the changes as follows:
- Insurance companies will no longer offer “Agreed-Value” Income Protection.
Agreed value is where you have a value that you and the insurer agree on. Generally, this means that you submit financial information at the time of the application, and then at the time of claim (if you make a claim), then you don’t have to provide any financial information.
From 1 April 2020, all new Income Protection policies will be issued on an “indemnity” basis, which means that payments will be based on income earned over the past 12 months. This means that you have to present financial information for the 12 months prior to your claim being made (due to injury, sickness, accident or other reason).
The risk is that your income has gone down from the time of your application. So, you may have paid a premium for a higher level of cover, but cannot claim on that higher level of cover;
- All new Income Protection policies will be limited to a term of 5 years.
The policy can be renewed after five years, but income needs to be re-assessed. Currently a number of Income Protection Insurance policies can go out until you are aged 65. So, if you are under 60, you have to keep renewing your insurance and go through that process every five years if you want to maintain that level of cover; and
- The Maximum Benefit will be capped at $30,000 per month (or $360,000 per year), even if it is less than your earnings at the time of the claim. For example, if you earn $50,000 a month, you can only receive $30,000 per month.
The effect of the changes are that there will be some increases in premiums, and also a change in the options available. We are expecting Insurance companies to increase premiums on existing and new policies.
We have developed some Frequently Asked Questions (FAQs) which are at this link, so that you can see some questions that our clients have already been asking:
Also, for clients who would like some more topical Insurance information here are some links to three AAG Fact Sheet:
If you would like us to review your Insurance policy prior to these changes, please email us as soon as possible at investments@austasiagroup.com.
There are still more changes coming up in the Insurance industry. We will keep you posted.
Important information and disclaimer
This publication has been prepared by AustAsia Group, including AustAsia Financial Planning Pty Ltd (AFSL 229454).
Any advice in this publication is general only and has not been tailored to your circumstances. Accordingly, reliance should not be placed on the information contained in this document as the basis for making any financial investment, insurance, or other decision. Please seek personal advice before acting on this information.
Information in this publication is accurate as at the date of writing, 3 march 2020. Some of the information has been provided to us by third parties. While it is believed the information is accurate and reliable, the accuracy of that information is not guaranteed in any way.
Opinions constitute our judgement at the time of issue and are subject to change. Neither the Licensee nor any member of AustAsia Group, nor their employees or directors give any warranty of accuracy, nor accept any responsibility, for any errors or omissions in this document.
Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.
