There are big changes coming to the Income Protection insurance space which need to be acted on with urgency.
Agreed Value Income Protection will be closing to new policies throughout the industry from 31 March 2020. This will have the biggest impact on self-employed or high-bonus earning individuals.
Agreed Value policies provide certainty that in the event of claim, you will receive the monthly income protection benefit you are paying for. The alternative (Indemnity Value) calculates the monthly benefit using the income received in the 12 months leading up to a claim – even if this is less that the insured benefit.
Typically, employees with stable incomes year-to-year are well protected by indemnity contracts, however this is not necessarily the same for the self-employed or employees who receive a large portion of their income from variable bonuses. The concern is they may become ill or suffer an injury at a time when their business is having a financially lean year and income or bonuses have dropped, resulting in a lower monthly benefit being paid.
An agreed value contract protects against this, and furthermore these policies will continue where they are in place before the deadline, allowing people to retain, increase or decrease cover at any time. Guidance from APRA also states that they will be monitoring the insurers dealings with these policies so that any premium increase can only be in the interest of sustaining the product – not to improve the insurer’s profit.
If you are concerned about your income protection insurance you need to act now. Provided you have started the review process of your policy with HLB Mann Judd by 31 March 2020 there is a grace period until 30 June 2020.