Insurance Alert – Major changes coming to Income Protection Insurance that all business owners urgently need to consider by 31 March 2020.

I want to share some important information on key changes that will affect income protection policy holders especially self-employed. With widespread changes coming that are more restrictive than current insurance offers it is a case of lock it in or lose it!

Due to large increases in income protection claims and industry losses on these policies the regulator is forcing insurers to make major changes to their policies including:
• Removal of ‘agreed value’ policies that are based on the income you advise at the start of cover, regardless of any subsequent change in income;
• Limits to the amount of income replacement payments;
• Insurer has the right to review cover after 5 years and potentially change offer terms

What does this all mean?
Agreed Value Income Protection
With an agreed value contract employees or self-employed can have the security of being able to lock in an agreed amount that will be paid if they are disabled and unable to work. This gives certainty at claim time especially as self-employed income can vary from year to year. It also means you are not scrambling to complete tax returns while you lay in hospital to prove your income. If you have an indemnity contract a claim would be limited to 75% of your income in a 12 month period, or your insured value, whichever is higher. Sounds simple but if you are self-employed your income could vary from year to year or your income reduces due to such things as maternity or study leave. This could be 75% of far less than you should actually be earning or what you are really “worth”.

Guaranteed Renewable Contracts
Any good insurance policy will offer a guaranteed renewable contract. This means that the insurer may not change the contract to your detriment as long as you continue paying the premium. Some even offer “auto upgrades” to new definitions etc. So how will the new policies work? Well say you were in an admin role (low risk rating) when you applied for your policy and then a few years later you had changed businesses or moved to a more risky role. Then under the new rules you would need to alter or renegotiate your contract at least every 5 years and subsequently your “rating” may change accordingly. This could mean increased premiums, reduction in benefit period or you maybe not be insurable at all.
 
What should people do before 31 Mar 2020?
• If you have an existing “Agreed Value” policy then review your cover to see if it is still appropriate and cost effective in the market. After 31 Mar 2020 you will not be able to take out a new “Agreed Value” policy so you may be locked in with that insurer for life
• If you have an existing “Indemnity” policy then review your cover to see if it is more appropriate to have the certainty of an “Agreed Value” contract that cannot be changed
• If you are with a industry super fund they do not offer “Agreed Value” or guaranteed renewable policies and may have limitations on benefit periods so investigate whether it may be appropriate to consider an “Agreed Value” policy
• If you have no cover then consider protecting your greatest asset – your ability to earn an income. What is this worth? A 25 year old earning $80,000/ year indexed at 4% per year will earn approx. $7.6 million until age 65. Income protection can cover 75-80% of income to age 65 or 70, is tax deductible and while on claim there is no more premiums to be paid.

There is a small window of opportunity up until 31 March for current policy holders or people considering income protection to lock in current benefits before they are removed from future policies.

As each person’s situation is unique it is wise to get a specialist to look at your own situation to see if there is a more appropriate and competitively priced policy for you. If you would like a no obligation free chat then please call on 1300 822 902.

Care4Wealth is a local business which specialises in insurance, superannuation and loans Call 1300 822 902 www.care4wealth.com.au