Be ready for new rules for income protection insurance

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New rules to income protection policies start from 31 March this year. These changes mean insurers will no longer offer policies that provide an agreed value payout after a policyholder makes a claim.

From 31 March, all new income protection policies will be indemnity contracts only. This means the payout benefit will be assessed at the time of a claim and based on the employment income earned over the previous 12 months. This contrasts with agreed policies, under which income is set when the policy is taken out which determines the future payout benefit.

The existing income protection policy holders that have an agreed value won’t be affected.

The shift to indemnity policies is to reduce losses sustained by insurers from the agreed income protection policies.

Insurers will also be given the opportunity to encourage policyholders to take steps to help them get back to work. It also means insurers are not paying out more than they need to in the event policyholders earn a greatly reduced income when they make a claim compared to when they took out the policy.

Other changes will also come into force from July 2021. From that time, insurers have the option to review income protection policies on a five-year basis. This will give insurers the opportunity to make changes to the premium, features and benefits of income protection policies.

While there will be no changes to policies taken out before 31 March this year, insurers could raise the price of premiums for these policies down the track.

Given these changes, it is an opportune time for people with existing income protection insurance policies to contact their Asparq adviser to review their policy to ensure it still meets their needs. If you do not have income protection insurance, now’s the time to explore whether it may be the right time to take out this cover.

The information contained herein is of a general nature only and is not intended to be relied upon nor is it a substitute for appropriate professional advice. Whilst all care has been taken in the preparation of the material, it is not guaranteed to be accurate. Individual circumstances are different and as such, require specific examination. Asparq cannot accept liability for any loss or damage of any kind arising out of the use of or reliance upon all or any part of this material. Additional information may be made available upon request.