In December 2019 APRA launched an intervention into the life insurance market in response to heavy losses on what is called Disability Income Insurance (known as income protection). APRA had to step in to force change so that insurers and re-insurers did not start withdrawing from the market.
Income Protection was designed to pay you a monthly benefit in the event you are unable to work due to illness or injury. It covers a maximum of 75% of your income, which should be enough to pay your essential expenses but leave enough of a shortfall to encourage you back to work.
Insurance is designed to transfer financial risk from yourself to another in exchange for a fee. If you choose not to have income protection, you are taking on the risk that if something were to happen to you, you would fund your expenses during this time.
Insurance can be an essential strategy for many of us when we may not have enough in reserves or may have high expenses such as debts (mortgage) as well as dependants (children, stay at home partners etc.) or have a particular goal that needs our income (such as a retirement plan).
Modern times have seen product innovations to income protection policies, along with peer pressure amongst insurers to compete for business by bringing in new features, this has seen income protection become one of the most highly claimed upon insurance policies which have led to an unprofitable product for every single insurer in Australia. APRA has deemed this unsustainable and is undergoing a major review with the intention to impose further capital requirements and product change.
APRA also expects life companies to better manage riskier product features, including by:
ensuring DII benefits do not exceed the policyholder’s income at the time of claim, and ceasing the sale of Agreed Value policies;
avoiding offering DII policies with fixed terms and conditions of more than five years; and
ensuring effective controls are in place to manage the risks associated with longer benefit periods.
You can read more here:
If you currently have an income protection policy that has all these features, then nothing will change.
Your policy is guaranteed renewable and will continue to offer you these benefits.
If you have been meaning to implement income protection cover, then now is the time to do so. If you have concerns about your policy or the options available, please call us to discuss.
This information contained in this document has been provided as general advice only. The contents of this document have been prepared without taking account of your personal objectives, financial situation or needs. You should, before making any decision regarding any information, strategies or products mentioned in this document, consult with your GPS Wealth Ltd financial adviser to consider whether it is appropriate having regard to your own objectives, financial situation and needs.