Changes to insurance and keeping-up-to-date with insurance information is easy to ignore when you don’t need it…but then you do. Here’s the change in Agreed Value policies that is set to be implemented this year. Does it impact your family? Michelle Stone from Feel Good Financial Planning explains the changes.
Certain kinds of Income Protection Policies will no longer be available after 31 March 2020, after APRA conducted a review into the sustainability of the Life Insurance Industry in late 2019.
Despite stories about insurers who don’t pay out, the reality is the insurance industry has suffered a billion-dollar loss on Income Protection claims in the last year alone, and the regulator is rightly concerned that this is not sustainable.
What has led us here are insurers aggressively competing on price and definition.
- These definitions, in some cases, are so generous that it is entirely possible to be on claim and earn much more than what you would ordinarily.
- This creates a disincentive to return to work.
- Couple that with mental illness being the most common condition claimed for (at 24%), an illness which is diagnosed based on self-reported symptoms, and you have the perfect storm.
Which brings me to… the change.
Changes to Insurance
The first change to be implemented, with more to be considered mid-year, is that Agreed Value policies will no longer be available.
What is an ‘Agreed Value’ contract – Your income is secured at time of underwriting and generally you can select the highest income year in between when you claim and up to 2 years prior to underwriting in which to base your pre-disability income. This guarantees your benefit you are paying for (or higher).
The alternative ‘Indemnity’ contract – This is the common definition for insurance held, as most are covered by salary continunace within super funds. Under the new style of indemnity proposed, it is your last 12 months of income only.
This will not disadvantage you unless ‘life’ gets in the way, which it quite often does, earnings can diminish within 12 months due to any unpaid leave including…
- Unpaid Carer’s leave
- Unpaid Maternity leave
- Unpaid sabbatical
- If you were on claim the year prior; and
- Most importantly self-employed people whose income can fluctuate
This can put you at risk of a lower benefit amount when you need it the most.
Anyone who holds a traditional retail contract that is agreed value, will not be affected by these changes if their policies are guaranteed renewable.
You have a limited window of time to have your income protection reviewed before these permanent changes come in. Please contact a risk insurance specialist or financial planner today for an immediate review.
Michelle is an Authorised Representative of Financial Services Partners (FSP) and the business owner of Feel Good Financial Planning. She has received the 2019 FSP ‘Adviser of the Year’ award for her superior approach to running a financial advice business; and was a Finalist in the 2019 ‘Woman in Finance Awards for Financial Planner/Adviser of the Year’.
Feel Good Financial Planning: Financial advice and planning to help you create a brighter future. Appropriate and quality financial advice can help you to make the most of your financial resources to protect against life’s ups and downs and help you to reach your personal and business goals. Find Michelle in our directory here.
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