Radical changes approved by the Australian Prudential Regulatory Authority (APRA) could mean that your insurance cover has changed.
Income protection coverage levels have been slashed. The drastic cuts come on the back of several difficult years for insurance companies and policyholders alike, with few businesses or individuals escaping the ravages of COVID.
The changes, introduced by APRA in November, are predominantly alterations to industry definitions and, in practical terms, mean that it’s now harder to qualify for income protection coverage, and harder to remain covered, even for those who initially meet the qualification criteria.
Insurance industry analyst Mark Kachor said the changes were driven by significant losses incurred by insurers, largely as a result of a sharp rise in mental health claims.
Read: Why COVID could affect your insurance, even decades from now
“Income protection is cyclical, in that every seven years it becomes unprofitable. But mental health is an additional cause of claim that is much more common today than it was 20 years ago.” he said.
The revised rules incorporate changes to the definitions of ‘incapacity’, changed time frames over which policies are paid out, and a cut to the maximum amount of income that can be insured. Previously anchored at 75 per cent plus 10 per cent superannuation, effectively making it 85 per cent, it has been slashed to 70 per cent.
What do these changes mean for you?
Possibly nothing at all, particularly if your income protection is provided as part of your superannuation cover. The changes apply to policies that are bought outside superannuation funds. These policies are very popular with self-employed business and tradespeople.
Read: Why your income could be at risk if you’re underinsured
The overall effect of these changes will be to bring overage levels in line with those provided by group insurance via super funds. If your coverage was purchased separately to a super product, your coverage is more likely to be affected.
What measures should you take to ensure you are adequately covered?
Speak with your insurance broker or adviser. It’s a good idea to do so at regular intervals in any case. Insurance claims expert Bruno Muraca, CEO of AFRM Claims Advocacy, says it’s a good idea to run ‘scenario testing’ with your broker.
“For example, ask your broker what would happen if you were unable to work as a result of a mental health issue, or if you were to sustain a broken leg, or even what coverage you would be entitled to if you hospitalised for 30 days as opposed to 60 days.
Read: Most super balances below what’s needed for retirement: APRA
“Also, try to get an understanding of what other features or benefits are within policies. For instance, if a rural client who is hospitalised locally needs to be to be relocated to a capital city hospital and their partner needs to leave his/her work to care for the client, will there be coverage? Some policies include a benefit that will provide a benefit payment to the carer in such circumstances.”
With COVID still having an impact, further changes and reductions are not out of the question as industry players continue to try to maintain profitability. For policyholders, the old adage, ‘forewarned is forearmed’, is particularly relevant. While the changes to industry rules are beyond policyholder control, keeping abreast of what you are and are not covered by can be achieved by regular policy ‘health’ checks through your broker or adviser.
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