RSM Australia

Agreed Value Income Protection policies will be banned by APRA

1 April Deadline – Agreed Value Income Protection policies will be banned by APRA!

Following a recent review of the life insurance market, APRA have announced proposed changes to income protection policies.

The introduced measures restrict the sale of new income protection policies to ‘Indemnity’ style only, ‘Agreed Value’ policies will be prohibited from 1 April 2020. This means that a successful claimant’s income will be determined at the time of claim, rather than the outset of the policy (as under an ‘Agreed Value’ policy). This can have a significant impact on the benefit paid to those with lumpy or fluctuating incomes such as the self-employed, or salaried professionals who may take a career break or extended holiday.

Example:

  • Royal commissionA professional generating $150,000 per annum decides to take a year off and their average income drops to $75,000 over the two years leading up to injury/illness.
  • If a claim on their policy is made soon after, under an Agreed Value policy they would still be entitled to an Agreed benefit of up to 75% of $150,000.
  • However, under an Indemnity style policy, they would only be entitled to a benefit of 75% of $75,000, even though they have paid a premium based on earnings of $150,000.

We do not think this proposal is in the best interests of consumers. In general, Agreed Value policies are superior to Indemnity policies. The restrictions will not affect existing Agreed Value policies, only new contracts from 1 April 2020.

If you are considering taking out income protection, or wish to revisit existing policies, there is limited time left to access an Agreed Value clause.

If in force prior to 1 April 2020, they will remain in force. Please reach out to an RSM Financial Adviser to discuss your personal protection needs today. 

If you'd like an RSM Financial Adviser specialising in income protection policies to contact you, please provide your details below.

This article has been prepared by RSM Financial Services Australia Pty Ltd ABN 22 009 176 354, AFS Licence No. 238282.

As everyone's circumstances are different and this article doesn't take into account your personal situation, it is important that you consider the above in light of your financial situation, needs and objectives, and seek financial advice before implementing a strategy.
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