The Increasing Cost of Income Protection Policies
If you hold an income protection policy, you may have noticed that your premiums have gone up.
It’s not just you, the cost of income protection premiums has increased significantly in recent times. In this article, we’ll explore the reasons behind this cost increase and what options you have.
Why are Income Protection Prices Rising?
There are two primary reasons for the rise in income protection prices: claims and the viability of the income protection product. The number of people making successful claims has increased significantly in recent years, which has pushed up premiums. Protecting a larger number of people for an extended period is expensive, and as a result, premiums need to increase to meet the costs of the product.
Impact on Insurers
Income protection products have faced increased scrutiny from regulators and customers in recent years. One of the major issues facing these products is their sustainability. Many income protection providers experienced high claim rates due to generous contract terms. This resulted in a product that was not priced correctly. To address this, insurers have closed older income protection products to new business and increased premiums to keep the products sustainable.
The Results of a Strained Income Protection Product
To continue providing income protection products to customers, insurers have taken several steps. Firstly, they have closed older-style income protection products to new business. Secondly, they have introduced new, more sustainable features. However, this has resulted in stricter claims eligibility criteria, more stringent occupation definitions, and more restrictive pre-disablement proof of income requirements.
Should I Switch to a New Policy?
If you’re thinking of switching to a different policy, there are several factors to consider. Although a new policy might be cheaper than your existing policy, you may be giving up many exclusive benefits common in older-style policies. It’s essential to compare the pros and cons before deciding whether to switch policies.
Some drawbacks of newer policies
- A lower maximum monthly benefit reduced from up to 75% down to up to 70% of your income.
- Stricter full and partial claim eligibility (many change from Own Occupation to Any Occupation after 2 years).
- Pre-disability income reduced from best 12 consecutive months in the last 2 or 3 years, to average monthly earnings for the 12 consecutive months prior to total disablement.
- May not provide a benefit for – Counselling, Nursing Care, Specified Injury, Transport within Australia, Transport from Overseas, Accommodation, Family Care, Home Care, Respite and Childcare
- Policies may be subject to a review every 5 years regarding your income, occupation and the generosity of the terms and conditions of your policy.
Alternatives to Switching
Rather than switching to a different income protection policy, you could retain your existing policy and take steps to help reduce your premiums. This includes lengthening waiting periods, removing policy options, or reducing benefit periods and monthly benefits.
Our OzPlan Financial Advisers have extensive experience in helping individuals and businesses with solutions for income protection. Our Shepparton and Numurkah offices provide expert advice to help you improve and grow your business.
Contact us to see how we can help make your life easier.
Published 16 January 2024.
The information provided in this article is general in nature only and does not constitute financial advice.