On the back of the individual disability income insurance industry collectively losing more than $3.4 billion over 5 years, APRA has taken action to try and stabilize the industry announcing a number of important changes in late 2019. The changes are set to primarily affect income protection policies issued after March 31, 2020. The most immediate and relevant change is the end of Agreed value policies.
- "With effect from 31 March 2020, APRA expects that life companies discontinue writing contracts where insurance benefits are not based on income at time of claim, including agreed value (and endorsed agreed value) contracts."
An agreed value income protection policy is essentially a contract where the insured amount is based on what the individual's income was when they applied for the policy, as opposed to what it was when they made the claim.
This means that some individuals with an agreed value policy are covered for far more than what they presently earn. It is thought this can discourage claimants from returning to work. The other argument is Agreed value contracts are imperative for those that experience fluctuations in income such as the self-employed. This provides the comfort that going on claim in a year of low income doesn't lock the recipients into an insurance payment for a long period of time that doesn't truly reflect their income earning capacity.
For those that presently do not have cover or have cover but do not have an agreed value contract its not too late. All policies in place prior to 31st March will be Grandfathered.
If you have any questions about the above, please call your Prosperity Financial Adviser on 1300 795 515 to discuss.