Time to Review your Income Protection

New measures are coming into effect as of 31st March 2020 regarding Income Protection products. As of this date, agreed value contracts will no longer be available for new policies. All new income protection benefits will be an indemnity value contract.

What is the difference between agreed value and indemnity value?

  • Agreed (also known as guaranteed)

An agreed value contract means that upon applying for your income protection policy, you are required to provide financial evidence to support your income claim. The insurer will agree to this benefit at the time of application, which guarantees your monthly benefit. In the event of a claim, your benefit payable will be your sum insured.

  • Indemnity

An indemnity value contract means that upon applying for your income protection policy, you are not required to provide financial evidence at the time of application. In the event of a claim, you are required to provide financial evidence of your pre-claim earnings (your income immediately prior to your disability). Your benefit payable will be the lesser of either; your sum insured, or 75% of your pre-claim earnings. This means that if your income has reduced since your policy commenced, you may not receive the full value of your insured amount. No premiums are refunded if the benefit payable is less than your insured monthly benefit.

Why are these changes happening?

These changes have come as a result of APRA*, the regulatory authority of the financial services industry, implementing changes to manage the associated long-term risks with Income Protection claims to improve the sustainability of disability income insurance. Both the number of income protection claims and the average length of claims has increased significantly over the years, which severely affects the sustainability of income protection policies and of the insurance companies’ capacity to fund these claims.

What does this mean for you?

If you do not already have an Income Protection policy in place, now is the time to review your current circumstances and your need for replacement income should you find yourself unable to work due to illness or injury. Whilst you will still be able to obtain an income protection policy after 31st March 2020, the only options for your benefit payments will be policies that are based on your income immediately prior to your disablement (indemnity).

What if you already have an agreed value income protection policy?

Agreed value policies currently in force will be retained. These changes are only applicable to new policies from 1st April onwards.

If you have any questions regarding these changes, or would like to discuss your need for income protection insurance, please contact our office on 1300 009 888, or email us: service@holzworth.com.au


*APRA media release: Sustainability measures for individual disability income insurance, 02/12/2019.


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