Check The Fine Print Before You Change!

Most people are familiar with income protection insurance, including the benefits of holding the cover. Namely to provide regular payments should you be unable to work due to illness or injury.

Many however are unaware of the major changes which occurred back in October 2021. There were several reasons for the changes which I won’t delve into right now, however let’s just say that the product took a backwards step.

This article only really applies to those of you who already hold a pre-October 2021 retail policy. In short, this type of policy is no longer available for purchase. It is important that you don’t cancel or change your policy over without receiving appropriate advice first!

There are a number of disadvantages with the new series income protection products when compared to the older pre-2021 products. I have covered off on some of the main points below, so please read on.

Agreed value contracts.

‘Agreed value’ polices are no longer available. Agreed value basically means that the monthly benefit amount stated on your schedule is guaranteed to be paid irrespective of your income at claim time. Currently, only ‘Indemnity’ contracts are available, meaning that your monthly benefit amount stated could be reduced at claim time if your income has reduced.

Not all older style policies are ‘Agreed value’ however even if your policy is an ‘Indemnity’ style contract, it is still superior to the new products currently available.

Own occupation.

Older style policies meant that benefits were paid if you were unable to work in your current occupation only. This has now changed so that assessment factors in any prior jobs you held through education, training or experience. This clause comes into play for medium to long terms claims, so initially you will still be assessed on your current or own occupation first. This means that maintaining long term benefit payments may become a little harder given the broader parameters.

Income insured.

The percentage of income insured has decreased from 75% to 70%. With the older style contract, your monthly benefit would have been $5,000 per month compared to $4,665 per month with current series, based on earnings of $80,000 per annum.

Pre-disability earnings.

With income protection insurance, your pre-disability income is used to determine your monthly benefit payment, except for ‘Agreed value’ policies. With older ‘Indemnity’ style contracts, insurers could use your best earnings over a period of between two to three years prior to disability. This offered additional protection for self-employed workers who may have experienced a bad year during that period.

Current series products determine your monthly benefit factoring in the 12 months immediately prior to disability only. This means that if you were out of work, on maternity leave or on holiday in the year of claim, your income would be considerably lower. Insurers do state that they can look back over the prior 12 months income for certain occasions, however I wouldn’t want to be at their mercy come claim time.

Total disability definition.

Older style contracts offered generous definitions when it came to eligibility criteria regarding benefit payments. Benefits would be paid if you suffered an illness or injury and either couldn’t perform one of your main income producing duties, experienced a reduction in income or were unable to work a certain number of hours. This was known as a three tiered definition.

The current contracts only allow for benefits based on being unable to perform your main duties only. Once again, this reduces your chances of qualifying for benefit payments at claim time.

As you can see from the points above, it is definitely in your best interest to hang on to your older series income protection policy for as long as you can! Feel free to message me with any queries.