Insurance changes are coming – take cover while you still can
You received a flyer because your employer has organised a confidential, cost-free, no-obligation consultation to help you prepare for upcoming government insurance changes which will have a major, unfair impact on professionals seeking insurance cover, particularly income protection cover.
Please find answers to some commonly asked questions below:
What is Superannuation?
Superannuation is a government policy designed to encourage people to accumulate savings for their financial freedom during retirement and rely less on the age pension. Employers must contribute a minimum of 9.5% of an eligible employee’s earnings to a Superannuation fund. This retirement savings account can’t be accessed until you reach your ‘preservation’ or retirement age.
What is income protection?
Income protection or salary continuance is a type of insurance policy that will replace your income for a period of time, often up to age 65, at a benefit somewhere around 75% of your pre-disability income.
For many professionals, income protection insurance is a vital safeguard to protect their earning capacity to provide security for themselves and their family in the event of a serious accident or injury that renders them unable to perform their job.
What are the changes being made?
The new, significantly less generous policies will:
Limit the way in which ‘income
at the time of claim’ is defined:
Previously, for agreed value policies, the monthly benefit was based on the agreed value at the time of policy commencement. Moving forward, income will be based on your actual earnings at the time of the claim, not agreed earnings.
Currently, to calculate actual earnings, some policies allow you to look back 3 years, find your best 12 months earnings within that 3 years and use that income as a basis for your claim.
Following the upcoming changes, this will be limited to looking back at the last 12 months only. If your income was lower in that 12 months, that is what your payment will be based on.
Pay you less in the event of a
claim. A maximum income
replacement payment of 90% will
be made in the first six months
and 70% thereafter.
Have a maximum payment period of five years, with a
right to renew cover at that
Income protection will no longer be guaranteed until age 65 like it currently is.
Changes to your occupation, financial circumstances, or you taking up a dangerous pastime, will be reviewed and updated every 5 years which can change the cost and benefits of your policy wildly.
What are group policies?
Group policies bundle your policy in with a large group of other people’s polices.
A single contract covers the entire group of people and the insurer makes certain assumptions about the condition of that group of people as a whole. For example, their health condition, such as smoker or non-smoker and their level of occupational risk, such as desk worker or underground miner.
It’s vital that members are categorised correctly when allocated these insurances and more often than not, they aren’t.
How does income protection work?
Like health insurance, income protection policies have a waiting period and a payment period. The waiting period is the time you must wait from when you make a valid claim, to the time you become eligible to start receiving payments.
The payment period is the period you can be paid so long as you remain unable to work. Other terms and conditions apply depending on the policy. All of these factors affect the level of premiums you pay.
As a result of these changes, we recommend that anyone wanting to check what cover they have or who are considering putting income protection insurance in place, act sooner rather than later.
The key benefits include:
Protecting your most valuable asset; your ability to earn an income.
Benefits if you are injured and unable to work for short periods and providing upfront payments for injuries such as broken bones or if you are diagnosed with a disease or cancer.
When should I take action?
There’s still time to lock in income protection before the changes in October 2021 come into effect.
If you don’t currently have income protection or aren’t sure your existing policy is right for you, please reach out to ensure your policy falls under the current (more generous) arrangements.
Typically, the process of obtaining cover can take approximately 6 to 8 weeks, so factor this timing in when getting in touch.
Why are group policies expensive and less preferable?
This type of cover is often poorly explained to members and poorly designed, based on inaccurate member statistics.
To cover themselves, insurers assume the worst from the group, ie/ smoking habits and general health.
Members are often being placed, by default, into an occupational category that doesn’t match their actual occupation and can end up being classified as being at higher risk than they actually are – and end up paying almost double more for their insurance premiums.
Terms and Conditions can be changed at any time upon agreement between the trustee and the insurer and applied not just to new, but existing policy holders.
Group policies usually have restrictive definitions and are less comprehensive overall, with lower maximum sums insured.
Why are changes coming?
Recently, the Australian Prudential Regulation Authority (APRA), an independent statutory authority that supervises institutions across banking, insurance and superannuation and promotes financial system stability in Australia, announced that it is concerned that life companies have been keeping premiums at unsustainably low levels to compete for customers and the industry isn’t making the profits it should be.
Why should I take action?
Without income protection you are putting your financial future at risk for not just you, but also your family.
No matter what changes come through the insurance industry, it is best to consider income protection insurance before it’s too late and you find yourself in a situation where you need it.
These are the most sweeping changes we have seen in the income protection marketplace. They are aimed at making income protection a more long-term viable product for insurance companies to sell, but it means they will be less attractive products for consumers than the current ones.