Major changes to Income Protection policies coming

Income protection or salary continuance is a type of insurance policy that will replace your income for a period of time, often up to age 65, at a benefit somewhere around 75% of your pre-disability income. The premiums from such insurance policies are often tax-deductible to the individual and these are highly valuable policies for people who find themselves unable to work due to sickness or injury.


The Australian Prudential Regulation Authority (APRA) who regulates the insurance industry in Australia (among other things) has as of 30 September 2020 mandated that some very significant changes be made to the way income protection policies are constructed.

These changes come into effect from 1 October 2021 so if you have been considering income protection or would like to have your existing policy review, now is the time to act.

What is changing? Lots.

Right now, some policies allow you to look back 3 years, find your best 12 months earnings within that 3 years & use that income as a basis for your claim – this is fantastic. However, following the upcoming changes, this will be limited to looking back at the last 12 months. If your income is lower in that 12 months for some reason (maybe you took some time off work) well, bad luck is what the insurance companies will say and you’ll be paid at the lower income.

Currently, some income protection policies have ancillary benefits that can mean you are paid 100% of your pre-disability income in the earlier months of claim before dropping to 75% or 85% of your pre-disability income. Going forward this will be limited to 90% in the beginning before dropping to 70% for the remainder of the policy. It means they will pay you less.

The big one is the terms & conditions of the income protection policy will no longer be guaranteed until age 65 like they currently are. The insurance company will have the ability to modify terms on your policy every 5 years. So things like a change to your occupation, change in financial circumstances, or you taking up a dangerous pastime will be reviewed and updated every 5 years. Importantly there will be no medical review necessary every 5 years but other changes in your circumstances can change the cost & benefits of your policy wildly.

These are the most sweeping changes we have seen in the income protection marketplace, likely ever. They are all aimed at making income protection a more long-term viable product for insurance companies to sell but it does mean they will be less attractive products than they currently are.

So if you have don’t currently have income protection or aren’t sure your existing policy is right for you please reach out. We will put you in contact with the appropriate people to review & make recommendations for you.


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