12 August 2021
Income protection insurance generally goes to work when you can’t, such as when you suffer an injury, illness or sickness and are under orders from your doctor to rest at home and not work.
Income protection insurance is designed to pay you a benefit for an agreed period of time until you return to work. There are different waiting periods and benefit periods that can be chosen to meet your needs and circumstances and ensure you have the necessary protection to continue living while you recover.
Changes to income protection from 1 October 2021
Currently, income protection policies offer generous terms and conditions, however, to help maintain the sustainability of the life insurance industry long-term, some major changes are being implemented from 1 October 2021, which will result in less generous policy terms and benefits.
Benefit calculation method
Currently, new income protection insurance policies are all offered on an indemnity basis, meaning you have the choice of looking at your earnings up to three years prior to the date of an event causing disability.
From 1 October 2021, the assessment of income prior to the date of disability is likely to become more restrictive, potentially only 12 months. This could have major implications for self-employed and business owners impacted by COVID-19 restrictions during the past 18 months.
Benefit calculation percentage
From 1 October 2021, the maximum income you will be able to receive from all sources will be capped at 90% in the first six months, with a maximum of 70% for all subsequent periods. It is likely that most policies offered after 1 October 2021 will be even less generous than this.
Currently, most income protection products available through your Financial Adviser are guaranteed renewable and, once commenced, the terms of the contract remain in-force.
For policies taken out from 1 October 2021, you’ll need to readvise your insurer of your occupation, income and pastimes, at intervals (to be determined). This may then result in your income protection cover being adjusted, including your premium, to reflect the changes in your circumstances.
Avenues to claim
Currently, the best income protection policies offer multiple ways to claim against your policy. For example, to work more than ten hours per week, or not being able to perform an important duty of your occupation. For policies taken out from 1 October 2021, the definitions related to disability may result in these being more restrictive.
Protect yourself before 1 October
If you take out income protection insurance before 1 October 2021, your policy will have its terms 'Grandfathered'. This means any existing 'more generous' terms will remain in place under the policy after these changes are implemented.
The average home price today in Sydney is $1,225,000  but the average income is only $89,003 . For most people, their most important asset is not their home, car or superannuation, it’s their ability to earn an income.
Without an income, most of us can’t pay for our home, car or any medical bills yet, the average Australian doesn’t consider themselves important enough to insure their income. Rest assured you are, and we can help you find the policy that’s right for your circumstances.
There’s never been a better time to protect your income. For assistance with establishing or reviewing your income protection policy, contact our insurance experts today.