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Big changes are coming to income protection in 2021

Following reviews into the industry in 2019, the Australian Prudential Regulatory Authority (APRA) has announced changes to Income Protection (IP) products that will come into effect on 1 October 2021.

The review has been largely in response to changes in how people work and to keep the industry sustainable. It is hoped that this will give an incentive to people to return to work wherever possible.

2020 changes

In 2020, insurers stopped offering new agreed value policies. Much like a car insurance policy, these policies allowed a person to lock-in their benefit and when the time came to claim, they would not be required to prove what they were earning. Under the new guidelines, your income at time of claim is assessed, meaning the monthly benefit paid will depend on what you have actually earned over the past year. This is referred to as a pre-disability income.

Further changes will be made in 2021 to IP policies. Here are two of the more important ones.

Maximum contract periods of 5 years.

Policies will have a maximum contract period of 5 years. Policy benefits will be reassessed at the end of that contract and no longer be guaranteed until age 65 as they may be currently.

While you won’t need to undergo a health check to renew, alterations to your income or employment, and other financial changes may impact your new policy benefits and the cost of your insurance cover.

Income replacement caps

Currently, some IP policies have benefits that can allow you to be paid up to 100% of your pre-disability income, dropping to 75% or 85% as an ongoing rate.

When these changes are implemented, a maximum income replacement payment of 90% of your pre-disability income can be made in the first six months and just 70% from then on.

Now’s the time to act.

Now’s a vital time to look at your personal insurance cover to ensure you have what’s needed to protect your family, and lifestyle before these changes come into place in October this year.

If you’re unsure about your current policy or coverage and would like to speak to one of our qualified Financial Advisers, please contact us today.

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