Australians have just days to lock in favourable income protection insurance terms before a major policy overhaul.
The Australian Prudential Regulation Authority (APRA) will on 1 October launch an overhaul of the life insurance market in a bid to stem ongoing heavy losses.
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The life insurance market lost around $3.4 billion in the five years to December 2019, with this week’s changes designed to redesign or end products with unsustainable or “excessively generous” features.
For Australians with new income protection policies, that means some benefits will be reduced or removed entirely.
And more broadly, consumers will be unable to claim as much while providers will not be required to guarantee a policy renewal, Finder head of consumer research Graham Cooke said.
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“Benefits will be capped at 90 per cent of earnings at the time of claim for six months, then at 70 per cent after the 6-month period,” he explained.
“Also, income will be calculated over the 12 months prior to a claim – some existing policies use the last two or three years to work out the highest rolling 12-month income.
“The changes will also see guaranteed renewable policies come to an end, meaning insurers will now be able to revise the terms and conditions of a policy every five years.”
Additionally, people who took out a policy while carrying out a reasonably safe job but then switched to a more dangerous job will need to tell their insurer, who can then decide whether to charge a higher premium or cancel cover.
That means that for Australians who have considered getting a policy, now is the time to decide, Cooke added.
"In most cases if you have an application submitted before 1 October and it’s accepted within 4-6 weeks, your policy will be effective as of today’s rules,” he said.
“Anyone who would struggle to get by without their pay should seriously consider income protection insurance.”
The main reasons people claim income protection insurance is to cover rent or mortgage payments, credit card bills or other forms of debt, school fees, utilities, medical expenses and home insurance.
A Finder survey found that 31 per cent respondents were unclear on what income protection insurance covers, while 16 per cent have cover and 11 per cent are considering getting it.
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