Important Changes to Income Protection Insurance
If you have individual disability income insurance (IDII), commonly referred to as income protection insurance, you should be aware of proposed changes by APRA, ie the regulator.
In a recent letter, APRA Executive Board Member Geoff Summerhayes points out that, “Disability income insurance plays a vital role in providing replacement income to policyholders when they are unable to work due to illness or injury,” 1
However with the individual disability income insurance industry collectively losing more than $3.4 billion over five years, APRA’s intervention is to add stability.
What changes are coming to income protection?
The changes are set to primarily affect retail income protection policies issued after March 31 2020.
At this stage of the legislation effective 1 April 2020 “Agreed” policies will no longer be available however the “Indemnity” type contracts will be available in their current product definitions and product features and benefits.
What is the difference between ‘agreed value’ and indemnity policies?
An agreed value income protection policy is where the insured amount is based on what the individual’s income was when they applied for the policy. An indemnity, is based on an individual’s income when a claim is made.
Other changes include;
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avoiding offering IDII policies with fixed terms and conditions of more than five years. It is important to note that this does not mean that the benefit period is limited to 5 years. It means that at the 5 year policy anniversary the insurer will automatically renew the policy without medical underwriting however the income insured will be reassessed and the occupation rating
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ensuring effective controls are in place to manage the risks associated with longer benefit periods.
With these announcements insurance companies will be very busy with applications leading to delays in and extended processing times.
If you are considering an Income Protection policy or a review of your existing policy, please contact us on |PHONE| to discuss.
Sources:
1APRA – Sustainability measures for individual disability income insurance https://www.apra.gov.au/sustainability-measures-for-individual-disability-income-insurance