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The End of Agreed Value Income Protection Policies

Whilst many people may not understand the importance on Agreed Value Income Protection, it is an important feature especially for self-employed Australian who tend to have fluctuating incomes.

Disability insurance (commonly known as Income Protection) in Australia has recorded losses of over $1 billion over the past 12 months across all insurers. This takes the total losses to over $3.4 billion in the last 5 years.

The Australian Regulatory Authority (APRA) has proposed the following changes:

-Avoiding offering Income Protection policies with fixed terms and conditions of more than 5 years.

-Ensuring effective controls are in place to manage the risks associated with longer benefit periods

-Ensuring Income Protection benefits do not exceed the policy owners income at the time of claim

-Ceasing the sale of agreed value Income Protection policies

APRA have said that there is now a genuine risk that risk insurers may start withdrawing from the market hence the proposed changes.

What is Agreed Value Income Protection?

Agreed value means that the insurer has endorsed your insured value (monthly benefit amount) so when it comes claim to claim there is minimal to no financial information required. The insurer will go on your income at the time of taking out the policy. Of course a medical professional will still have to sign off that you cannot work due to injury or illness. The other option is what is called an Indemnity contract. This is the most common contract on Income Protection policies and means that the claim amount will be limited to 75% of your income for the last 12 months (24 or 36 months for some insurers). This can be a problem for clients who are self employed and have an income that fluctuates yearly as the previous 12 months may be less than what their insured amount is. The indemnity contract will be the only option available from April 1, 2020 if APRA’s changes go ahead.

What can you do?

If these changes go ahead it’s highly likely that Agreed Value policies that went into force before March 31 will stand. Agreed Value Income Protection is not right for everyone although if you haven’t had your policies and financial situation reviewed recently now may be the perfect time.


This information is general in nature and should not be considered as personal advice

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