Following the changes to income protection policies in March 2020, there will be even more sweeping changes later this year.
In response to concerns about the sustainability of the income protection insurance industry, Australia’s prudential regulator, APRA, is set to mandate further regulatory changes from October 2021, that will have a major impact on professionals seeking income protection cover.
The impending changes to be introduced on 1 October 2021, should be cause for concern if you do not yet have income protection cover in place.
Most significantly, a change to the occupation clause is set to fundamentally alter how individuals can claim for cover, with professionals in higher earning jobs set to feel the biggest impacts.
So what will be the biggest changes?
Five year Contract Period
Policies will no longer have fixed terms of more than five years and will also be reassessed every five years to ensure they are relevant to the holders’ current occupation and income.
If your income or occupation has changed within the five year period, it is likely to affect your level of cover, however any changes to your health will not be considered.
For example, if as a result of a reduction in work hours due to progressive injury, illness, or sabbatical leave (e.g. fellowship, further study, maternity leave), your income also reduces, your cover may also be reduced.
Less relevant for medical professional perhaps, if your occupation changes to one that subjects you to a higher level of risk, i.e. white collar to blue collar, the cost of your cover could increase, or the policy itself could be cancelled if you’re employed in an occupation the insurer is no longer willing to insure.
Currently the ‘own occupation’ definition exists to protect qualified professionals from being pushed into ‘any occupation’ if an injury or illness deems them unfit to perform their profession at the time they took out cover.
With APRA’s regulatory changes, claims extending longer than two years will be subject to an ‘any occupation’ clause. Under this clause, the ‘own occupation’ definition will only be applicable for the first three years of a claim and policyholders will no longer be able to claim if they can perform ‘any occupation’.
Previously, policyholders were measured against their ‘own’ profession and may have been able to claim indefinitely if they could only not perform it. The impending changes will see that after two years, claims will be assessed on the ability to work in ‘any occupation’ based on training, education, and experience, and one that the disability wouldn’t prevent anyone from performing.
An any occupation definition is a much broader definition and is more difficult to satisfy, so you might have to return to work in a different role. As a hypothetical example, a surgeon may have to return to work as a GP. The biggest change expected is the conditions you must satisfy to be considered totally or partially disabled.
So, what should you do?
If you don’t currently have a suitable income protection policy, now would be the time to start looking into your options. Underwriting an insurance policy can take several months, so you shouldn’t wait until the last minute to secure one.
Contact me on 0432 885 295 or Yves@affluenceprivate.com.au. I would be happy to discuss commission-free advice options with you.