Income Protection Insurance Is Changing: What You Need To Know
Author: Matthew Prain
An often underappreciated yet critical aspect of people’s financial lives is protecting against risk. It’s something Stanford Brown thinks deeply about and underpins all our work with clients. And after life itself, there’s no more important asset to protect than your ability to earn an income.
After absorbing billions of dollars in recent years, from 1 October 2021 insurers are being required by their regulator, APRA, to make changes to income protection policies to ensure the industry remains sustainable.
To learn more and see how you can take advantage of opportunities before 1 October, read below or watch the 3-minute interview between our Chairman, David Brown and our Senior Insurance Adviser, Matthew Prain.
What is Income Protection Insurance?
Income Protection insurance replaces your salary every month you are unable to work due to accident, illness or injury. Its primary focus is to ensure if you lost the ability to work in your own role, that you can continue to meet your lifestyle expenses such as paying your mortgage, covering the cost of food or sending your children to your school of choice.
What is changing?
We are seeing two key changes taking place.
First, due to the losses incurred by insurers and changes mandated by the regulator, existing policy premiums are rising, and in many cases rising sharply. Clients that currently hold Income Protection policies will have seen and will continue to see their insurance premiums increasing. These increases are prompting people to engage with their cover like never before. Clients are looking into their options and want solutions to ensure the premiums remain affordable and want clarity on what’s happening within the industry. We have seen premiums increasing between 15% – 50%.
Second, many current key features of an Income Protection policy are being stamped out and will no longer be offered for new clients from 1 October 2021. In short, we expect that policies after that date and beyond won’t be as comprehensive as they are today. Changes such as long benefit periods to age 65 and 70 will likely be replaced with shorter durations of 5 years, reduced replacement ratios, a stronger policy emphasis on getting people retrained and rehabilitated to get back to work and policies being required to be reapplied for every 5 years. The level of change is unparalleled.
What are your options?
Clients who aren’t happy with their increase in premium or have a need for insurance due to taking on debt, starting a family, starting a new business or for any number of other reasons, can take out cover now before the bulk of the changes are implemented. Policies currently offered are grandfathered once the changes go through, allowing them to hold on to today’s policies with better definitions and features.
What can Stanford Brown offer to help?
We are recommending that clients and our network of professional partners actively review levels of cover to ensure they continue to be fit for purpose, are competitively priced and of high quality. If clients are not currently protected but need coverage, we will take the time to review their situation and talk them through the options available to them today. For new clients considering their situation, our specialist insurance team offer a second opinion and importantly, provide options.
More than ever, insurance is no longer a set and forget proposition and needs to be regularly reviewed and monitored by a specialist.