INTHEBLACK May 2022 - Magazine - Page 49
ENTERING A NEW
ERA OF INCOME
PROTECTION
RECENT CHANGES TO
REGULATIONS FOR INCOME
PROTECTION INSURANCE WILL
HAVE A SIGNIFICANT IMPACT
ON CUSTOMERS WANTING TO
PURCHASE A NEW POLICY OR
UPDATE THEIR COVER.
L
ate last year, Australia’s income
protection (IP) insurance industry
underwent a major overhaul.
With insurers losing about A$3.4 billion in
the five years to December 2019, the Australian
Prudential Regulation Authority (APRA) enforced
a series of measures to rein in products that were
keeping premiums at “unsustainably low levels”
and offering “excessively generous features”, to
safeguard the sector’s future.
As a result of these changes, which came into
effect on or before 1 October 2021, there is now
a broader range of IP products available, as well
as wide variability in cost.
While the changes won’t affect customers
who purchased an IP policy prior to 1 October
2021, for anyone planning to take out new cover
or update their existing product, here are three
factors to consider.
No more agreed value IP cover
All new IP products offer indemnity value
cover, which provides a monthly benefit to
claimants based on a percentage of their income
at the time they make a claim. (Some products
previously calculated benefits using the highest
12 months’ earnings in the two or three years
prior, but this won’t apply to new policies, except
in special circumstances.) Historically, customers
could purchase an agreed value policy, whereby
the amount they were insured for represented
a percentage of an agreed amount at the time
01
they took out the cover. This is no longer
available on new policies.
Insurable income is capped
APRA introduced limits on how much
income could be replaced. Benefits are now
capped at a maximum of 90 per cent of
earnings at the time of claim for the first six
months and cannot exceed 70 per cent of
earnings thereafter.
This percentage tends to range from 60 per
cent upwards over different benefit periods (i.e.
six months, two years or longer), depending on
the insurer and the product they’re offering.
A sliding scale may also be applied. The
higher portions of someone’s income may
only be insurable at a reduced percentage.
Customers can also choose to insure a lower
amount, according to their needs. Different
insurance offerings in the market tend to have
different percentages within the APRAmandated limits, so always compare products
carefully before making a decision.
02
Movement in disability definitions
If a customer becomes sick or injured,
and has served the relevant waiting period,
they will receive monthly benefits while
they’re unable to work for the period
nominated in their policy. In such cases,
customers will be assessed on their inability
to perform work duties.
03
However, as a result of the changes to
IP cover, the industry is currently seeing a
tendency for more products to link “disability”
criteria to an inability to work in “any
occupation” to which they’re suited or capable
of performing, based on their education,
training or experience (as opposed to the
insured person’s regular or “own” occupation)
after a period of time “on claim” – often two
years for those still on claim during their
benefit period at that time.
There’s also a tendency for more products
to require customers to undergo additional
assessments after being on claim for
24 months.
When considering IP cover, it’s important to
check the terms and conditions – including what
kind of occupation (i.e. often “any” or “own”) is
used to determine whether the disability
definition is met – so that you understand the
entitlement to receive benefits if you’re unable
to work because of injury or illness.
With so many changes transforming the IP
insurance sector, it’s never been more critical
for customers to examine the scope of their
cover – making sure it’s sufficient for their
needs should an unexpected illness or injury
event derail their efforts to earn an income.
Similarly, customers with existing IP cover
issued prior to the changes should consider
their situation carefully if thinking about
replacing that cover with a new product.
CPA australia members are entitled to a discount on NobleOak’s life insurance and income protection insurance.
For a quote from NobleOak, visit nobleoak.com.au/cpa
Important information – The Target Market Determination for NobleOak’s Premium Life Direct insurance is available at www.nobleoak.com.au/target-market-determination.
NobleOak Life Limited ABN 85 087 648 708 AFSL No. 247302 issues the products. This information is of a general nature only and does not take into consideration your objectives,
financial situation or needs. Always consider the Product Disclosure Statement (PDS) (available on the NobleOak website) to see if the product is right for you.
intheblack.cpaaustralia.com.au May 2022 49