The insurance industry has changed a lot in Australia over the last 10 years. Competition, increased demand and improvements in medical treatment and diagnosis has led to continual enhancements and upgrades to insurance policies, in particular income protection.
More features and benefits has lead to more claims, which insurers have needed to recoup by increasing premiums. In recent times however, increasing claims have outpaced rising premiums and this, together with falling interest rates and rising costs of claims, has seen the life insurance industry continue to incur substantial losses.
To ensure sustainability of life insurance providers and improve the affordability of income protection cover for policyholders, the Australian Prudential Regulation Authority (APRA) has released a range of measures.
What is changing
For income protection policies issued after the 1st October 2021:
- Claims will be limited to the maximum of the insured monthly benefit or a percentage of pre-disability income, whichever is lower (this change has already been in effect since the 31st March 2020).
- Income replacement cannot exceed 90% of pre-disability income for the first 6 months of a claim and 70% thereafter.
- Assessment of pre-disability income will be capped at the last 12 months for policyholders who have “predominantly stable” income.
Implications for policyholders
Everyone’s situation is unique and policies differ between providers, so it is recommended to seek advice before changing or obtaining insurance cover, particularly income protection.
If you have any questions about the above, please call your Prosperity Financial Adviser on 1300 795 515 to discuss.
This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser, Hillross Financial Services Limited and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. Please contact us if you want more information. Prosperity Wealth Advisers Pty Ltd (ABN 32 141 396 376), Authorised Representative and Credit Representative of Hillross Financial Services Ltd, Australian Financial Services Licensee and Australian Credit Licensee 232 706.