Walker Wayland - Perth Accountants

Dec 2021 4 Minutes

Have you considered Income Protection Cover in view of the changes 1 October 2021?

The new guidelines set out by APRA have already seen the discontinuation of the availability of agreed value policies in the insurance market from 31 March 2021.

From 1 October 2021, further changes have come into play that will see a significant change to income protection policies.

Have you got an income protection policy in place that will provide for you at your time of need?

Income Protection (IP) provides a monthly payment if you’re unable to work due to an illness or injury. You can use the payments however you wish: to cover living costs and household expenses like mortgage repayments, groceries and utility bills, to support your family (school fees, for instance) or for rehabilitation services to help you get back to work as soon as possible.

Summary of the changes

Income at Risk

Existing Policies

Generally policies in the current market consider the highest average earnings for any period of 12 consecutive months up to two to three years immediately before the insured becoming totally disabled.

Changes Effective 1 October 2021

Changes to the assessment of income at the time of claim:

  • Predominately stable incomes should be based on annual earnings at the time of claim, not older than 12 months.
  • Variable Income be based on average earnings over a time-appropriate period for the occupation and reflective of future earnings lost as a result of the disability.


Income Replacement Ratio

Existing Policies

Currently income protection policies cover up to 75% of your pre-disability income with additional benefits available on policies that mean you could receive more than 100% of your pre-disability income.

Changes Effective 1 October 2021

  • Capping the limits of income replacement to a maximum of:
    • 90% of earnings in the first six months of claim
    • Not exceeding 70% of earnings thereafter
  • Adjustments to claims escalation benefits to ensure that indexation claim payments are suitable
  • Return-to-work initiatives focused on rehabilitation can be made in addition to the income replacement limits
  • Superannuation contributions can be excluded from the limits and are to be paid to the nominated super fund and not to the claimant


Policy Contract Terms

Existing Policies

Current approach enables clients to access a policy that is ‘guaranteed renewable’. This means as long as premiums are paid, your policy will continue each year despite changes in your health, occupation or pastimes.

Changes Effective 1 October 2021

  • Policy Contract terms will not exceed 5 years
  • Policy Contracts may, at 5 years, be re-underwritten occupationally, financially and for dangerous past times, for a new contract with another 5-year term that is then available from the life company, however no medical underwriting is required
  • If terms and conditions are changed for the IP product, these must be endorsed with approval of the insurer’s board after advice from the appointed actuary who considers sustainability and fairness to the customer


Benefit Periods

Existing Policies

Benefit designs that are currently on offer but subject to change include:

  • Generally cover is available for a benefit period up to Age 65
  • Stricture definition for ‘any occupation’ definition after an initial two-year benefit period.
  • Moving away from a three-tiered disability definition (duties, hours, income) to a one-tiered definition solely based on important duties.
  • Dropping the income replacement ratio from 70% to a lower ratio such as 60% or 50% after a specified period.

Changes Effective 1 October 2021

Life Companies are expected to:

  • Have effective controls in place, including benefit design features to manage the risk of long-term claims particularly those with long benefit periods
  • Set internal benchmarks for new Income Protection products that reflect insurers’ risk appetite and the effectiveness of their controls


Existing income protection policies are currently guaranteed renewable and will not be affected by the changes. If you are happy with your current policy definitions, there is no cause for concern.

If you don’t have Income Protection cover or you’ve experienced significant increases to your income earnings, now is definitely the time to consider a review before the changes come into play. Insurance applications can take time to process and be assessed and we encourage you not to leave this to the last minute to action/review.