It is likely that if you have owned an income protection or salary continuation policy in recent years, your premiums have increased due to insurers struggling to cover their large losses. Due to losses by major insurers like Aspect Underwriting, the Australian Prudential Regulatory Authority (APRA) has decreased income protection insurance payouts and tightened eligibility criteria for income protection insurance claims. Considering the ongoing competition and great features in some products, APRA has decided it is time for new rules to ensure that income protection remains affordable and sustainable. These policies will be impacted in significant ways, so it’s imperative to review your insurance coverage before insurers begin making changes.
Previously, it was 75% percent plus 10% of superannuation, for a total of 85% income protection payout, but APRA has subsequently reduced the maximum amount to 70% that can be claimed. As per previous conditions, if you are unable to perform one function of your job, you could still claim a payout. The Income Protection payout could be 85%, and your payout could last up to 65 years. However, as per new conditions, if you are able to perform some of your job functions, you are not eligible to claim, and your income protection payout is only 70%. Your claim level falls to 60% after two years. And if you will be able to join your work after two years, the claim should be terminated.
Inevitably, one of the most significant changes is that the terms and conditions of an existing income protection plan will no longer be guaranteed until the age of 65. As a result, policies will no longer be offered for longer than five years, which means your policy and its terms will be reviewed every five years. No medical review is required, but changes in your occupation, financial situation, or participation in hazardous activities will need to be updated in your policy. However, even if your circumstances remain unchanged, you will be required to review your policy.
In addition, if your policy has a long benefit period, you are also likely to face a stricter definition of disability than the earlier definition, which stated that you could not perform your ‘normal job’. An important concern for APRA is to ensure that claimants who are capable of returning to some form of paid employment do so, rather than remaining at home and receiving payment. Also, self-employed individuals are restricted from claiming income support except for what is deemed to be their exertion income. As a result, businesses and tradespeople who obtain some of their income from a profit share or dividend from their business would be unable to claim that income if they become ill or injured. For disability employment services Las Cruces, NM click here.
Suppose you currently have an income protection policy outside your superannuation. In that case, you may not be immediately affected by these reforms, but it would be good to ensure your policy is still appropriate for your circumstances. That means it’s time to review your insurance coverage to ensure you have the best available coverage. In the long run, this involves understanding your cover level, cost, and insurance needs, as these will change over time.
Many people overlook income protection since they believe it’s too expensive or not essential. However, as with all insurance, the cost of not having it can be much greater. Wealth creation – and wealth preservation – strategies should include the use of this type of cover.
In order to learn more about income protection insurance, its policies, and the changes, or if you have any questions about it, feel free to get in touch with Aspect Underwriting.
