Insurance Changes Coming

15.07.21 Wealth By Joe Calcraft
Insurance Changes Coming

Your ability to earn income is by far your greatest asset and protecting it, is the cornerstone to wealth creation.

As of October 1st this year, there are real changes coming to insurance which will change the way income protection is handled. This follows a review by APRA into the sustainability of insurers.

The bad news: new policies will not be as generous in their payouts or methodology.
The good news: you have time lock in a better policy before the changes take effect.

Below is a very brief explanation of the 4 main changes coming and how they will affect you. Further detail below that, and of course feel free to call if you’re unsure what you need to do.

Income at Risk

APRA Recommendation: benefit payouts should reflect the income earned at the time of the claim

What this means for you: if your income fluctuates and you’re in the unfortunate position of needing to claim when your income is lower, then your payout will reflect your income at that time.

Income Replacement Ratio

APRA Recommendation: there should be greater incentive to return to work

What this means for you: maximum payouts to reduce to 70% for the first two years and lower thereafter

Policy Contract Term

APRA Recommendation: no need to be ‘guaranteed renewable’

What this means for you: policies may be reviewed every 5 years, and new terms struck based on assessment at that time

Benefit Period

APRA Recommendation: reduce the benefit period

What this means for you: you may not be insured until age 65 which is the usual period. Further, your ‘own’ occupation payout will likely change, meaning if you are fit to perform ‘any’ occupation, then your payouts will likely cease.

Substantial Changes to New Income Protection Policies from October 1, 2021

Following an APRA review of the sustainability of Insurers which commenced in December 2019, there has been a number of changes slated for all Income Protection policies which start after October 1, 2021.

If you’re not much of a reader, at least do yourself a favour and speak to a financial adviser about getting income protection in place now, as the policies won’t improve and certainly think twice about cancelling or replacing a current policy.

Income at Risk
Income Replacement Ratio
Policy Contract Term
Benefit Period
Conclusion

It will always be up to each product provider to design their suite of policies themselves, however they will be forced to take into account the APRA guidelines from October 1. It is almost a certainty that policies put in place after this date will not be as comprehensive as the current ones. This is where a financial adviser comes into play and works with you to get the right outcome, it may well be the right time to get one in place now before the changes.

 


As always, this was written with all due care but does not constitute personal financial advice. General Advice Warning: Any advice given herein is general in nature and has not taken into consideration your personal financial objectives, situation or specific needs. You should consider the appropriateness of the advice as it relates to you before acting upon it. Where a specific product has been mentioned, you should always consult the Product Disclosure Statement (PDS) before making any investment decision relating to it.

 

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