#everyoneneedsaplan When Reviewing Income Insurance Policies

Last year the life insurance regulator (APRA) determined that income insurance policies in Australia were not sustainable and changes were required.

The primary change was to eliminate all Agreed Value policies.

Agreed Value policies insured the income at the time the policy was established, and any subsequent claim was based on that income, not income at the time of claim.  Indemnity Value policies pay a claim based on the income at the time of claim.
Agreed Value policies were particularly important for those with variable income, such as self-employed persons.

Agreed Value policies already in force cannot be cancelled, but any new policies cannot be underwritten on the basis of Agreed Value, they must be Indemnity Value policies.

APRA has just finalised their review and included in the Agreed Value policy change, other measures have also been taken.

• Income replacement ratios are now capped at 70%, reduced from 75%.
• Policy contract terms are now a maximum of five years, with a new contract required to be issued at the end of the five years.  Although medical underwriting will not be required when replacing the original contract.

The most important action you must take if you have an existing income insurance policy and you are considering changing or updating that policy, is to seek advice from a suitably qualified professional before doing anything.  You may inadvertently cancel a policy that you can never replace.

Please contact our office if you would like to discuss these issues in further detail.