If you don’t already have income protection insurance but you’ve been thinking about it, you should move on it now. APRA is about to make some far-reaching reforms.
I got a call recently from my financial planner, encouraging me to make sure my income protection insurance was up to date before 1st October. If you haven’t already heard, the Australian Prudential Regulation Authority (APRA) is about to make some far-reaching reforms to income protection policies.
Basically, the benefits currently available to policy holders are about to change and it’s not good news. The way I understand it, is that you’ll have to pay twice as much to get the same level of cover… and yes this may impact income protection policies held within superannuation.
What is income protection insurance?
Income protection insurance is a bit like sick leave in that it replaces part of your income if you are unable to work because of injury or illness. But unlike sick leave which is around 5 to 10 days per year in most cases, income protection may pay up to 85% of your pre-tax income for longer periods of time (depending on the type of policy you get).
For me it was about keeping my lifestyle going should the unthinkable happen. As a small business owner, I also have a lot of people depending on me, plus I have a mortgage that needs to be paid, as well as other living expenses, regardless of whether I’m working or not.
So I’m just saying, if you don’t already have income protection insurance but you’ve been thinking about it, you should move on it now. At the moment, most policies are renewed annually with terms and conditions that do not expire until you reach retirement age. This is going to change in October.
Why is APRA making changes to income protection insurance?
APRA announced back in 2019 that the income protection insurers have lost around 4.3 billion dollars over the previous 5 years, making the industry unsustainable. Because of this, APRA decided to step in to try and regulate the market so it would be sustainable into the future.
Life companies are expected to better manage riskier Disability Income Insurance (DII) policy features such as:
- ensuring DII benefits do not exceed the policyholder’s income at the time of claim, and ceasing the sale of Agreed Value policies
- avoiding offering DII policies with fixed terms and conditions of more than five years, and
- ensuring effective controls are in place to manage the risks associated with longer benefit periods.
If you currently have income protection insurance, you may want to check your policy now to make sure you are locked in before these changes take place. If you don’t have income protection and want more information about it, feel free to contact me on 02 6188 4555, and I’ll forward you the details of my financial planner.