Keeping this post short and sweet, here’s why you should review your income protection policy before the regulators step in on October 1st 2021.
What is income protection insurance cover – it is there to pay you a significant portion of your income (currently 75% plus Super contributions) if you can’t work due to illness or injury.
Who should have it? Everyone that relies on a wage/income from working should have an amount of cover in place. A simple way to think about it, if you couldn’t work how long can you afford rent/mortgage repayments and living expenses? Sadly, the bills don’t stop if your income does.
How can I pay for it? You can pay for the premiums through your superannuation fund or personally. We have found that many people especially in recent times have loved the option of having the peace of mind without the premiums coming from their personal bank account.
Why should I review it before October 1st 2021? There are new government regulations coming into force that will reduce the benefits that you can get on new income protection policies written after 1st October 2021.
Great news if you already have a comprehensive income protection policy as your contract won’t be impacted.
We got this really good summary of changes through an industry network:
- Income replacement ratios to be reduced to 70%, from 75% currently.
- Other benefits in the first six months of a claim to be restricted to an additional 20%, i.e. a limit of 90% overall. This compares to current policies offering a range of supplementary benefits which can double this.
- Income to be calculated on last 12 months income only, compared to some current policies offering highest 12 months income in the last 2 or 3 years.
- Long benefit periods, such as to age 65, to be managed to maintain a motivation to return to work. This may include changing from “Own Occupation” to “Any Occupation” definition after 2 years on claim.
- Plus more like a reduced tiered payment for longer term claims eg less money the longer you are ill/injured.
From the discussions we have been having with a range of high quality insurance providers, the pricing will not be cheaper for the new products with weaker definitions.
At this stage, there is a very limited number of companies that have released their ‘regulator approved’ product offering so we can’t give a clear industry picture of it.
The reality is, if you leave it to chance you could be disappointed.
Depending on your circumstances it can be extremely valuable to have this reviewed.
Some examples of who is impacted and how the impacts can be negative?
- Mothers injured/ill shortly after returning to work after maternity leave – as the new regulations will only allow your policy to pay max income % based on your income in the past 12 months (instead of best income in the past 3 years)
- Variable income earners – business owners, sales reps, performance or hours incentivised workers – if you didn’t reach business targets because of lockdown but are usually on a significantly higher annual income, you can be worse off at claim time.
- Those that have a mortgage – especially mortgages that have recently been committed to, 25+ years of repayments. If there’s a longer term injury/illness the reduced % payout and a reduced amount of time you can claim.
- Those who don’t have financial support from friends or family and have high living costs. Eg single parents.
We are here to help and want to see people in the best possible positions not only for building wealth but also for protecting it.
If you have any questions at all please ask.
We are more than happy to have a FREE consultation with you to ensure that you undertsand your options or if it is appropriate for you.
Or, if you want to do some reading on your own – we have a whole section dedicated to Personal Insurances in our “Foundations Ebook – link below’
Get In Touch
If you prefer to send an email question/query through the best address is firstname.lastname@example.org or simply fill out your name, email address and a short message including your phone number will get back to quickly.