From October 1, 2021, life insurers will only offer significantly less generous income protection policies to consumers.  

The four major IP reforms are: 

1. Changes to how ‘income at time of claim’ is defined, with the insured income calculated on your annual income 12 months before the claim. Previously this calculation was based on the best income period up to three years prior.This is especially critical for business owners whose income might fluctuate significantly and parents who take time off to look after kids.

2. The introduction of a two-stage income replacement ratio, with the maximum income replacement payment limited to 90 per cent during the first six months and 70 per cent after that.
Imagine, if you’ve got an income protection policy that lasts until age 65 and you can never work again, that’s a massive reduction in long-term benefits.

3. Insurers will no longer offer guaranteed renewable policies for the life of the policy. The maximum contract period is five years. After which, your insurance company will be able to update your occupation rating and pastimes.
That means if you’re a brain surgeon in a super safe job, then five years later, you become a truck driver, your policy premiums and claim benefits will change. The same applies if you suddenly decide to take on skydiving as a hobby.

4. Return to work assessment definitions will make claiming harder. Post-October 1, if you’ve been working for 12 months and make a legitimate claim, you’ll get paid your benefit. However, after two years, your insurer can change the return-to-work definition based on any work you are capable to do rather than your profession.
For example, if you’re a teacher and couldn’t teach anymore due to a mental health condition but are still able to work in a bakery, after two years, your insurer can ask you to return to work in the bakery.

What do the changes mean for existing insurance policyholders? 

The October 1 changes do not impact existing policyholders. However, consulting your financial advisor for an income protection policy health check is a smart move in light of these reforms. 

Seek expert advice on income protection. 

If you don’t have income protection and you’re eligible to take out a policy because you’re healthy, working, and earning a good income, act well before October 1, 2021. That way, your income protection policy falls under the current, more generous arrangements. 

But please don’t call on 25 September and say, get me an income protection policy. By then, it will be too late. Get in touch with us now and let’s get you prepared early!