Income Protection premium increases can still leave you vulnerable

Posted on 16/3/2021


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With income protection insurance premiums continuing to rise across the board, it pays to review your policy regularly to ensure it offers value for money and adequate protections for you and your family. Without coverage tailored to your needs, you may still be in a vulnerable position if and when the need to claim arises.  As the life insurance industry grapples with record losses of more than $1.3 billion in the 2020 financial year, Australians can expect further increases in their premiums and increasingly restrictive conditions when taking out new policies or attaching additional cover to an existing policy.
Income Protection

Several factors at play in rising premiums

The actual and anticipated premium hikes continue a trend of major changes impacting life insurance providers in response to concerns from Australia’s prudential regulator (APRA) about the ongoing sustainability of the industry.

The losses experienced across industry last financial year continue a five-year trend that has seen insurers fall into a $3.4 billion black hole in what has become a significant cause for concern for APRA.

As we have previously detailed, new regulatory changes have been introduced to help address these concerns, with more expected to come into effect from 1 October 2021.

Eddie says other macro environmental factors such as COVID-19 are also contributing to premium hikes across the board.

“There’s no doubt the industry is dealing with systemic issues, particularly in regard to the sustainability of income protection insurance, which have only been exacerbated by COVID-19” he says.

“ Increases in the number and duration of claims, especially related to mental health have all contributed to the current situation.

Price hikes don’t necessarily equate to appropriate cover

When facing an increase in your income protection insurance premium of up to 70 per cent, you could probably be forgiven for thinking that you would be receiving improved cover through your existing policy.

However, as Perks Insurance Director Eddie Bell notes, this is usually not the case and warns against the pitfalls of taking a ‘set and forget’ approach to life insurance.

“The pace of change in the industry is really something that all policy holders need to be wary of, particularly as your personal circumstances continue to evolve,” he says.

“As a guide, you should look at your cover every 12-24 months, considering factors such as job and family status, personal health risk factors and whether you’ve paid off or taken on any debts.

“If you haven’t reviewed your cover in a while or if you’re still attached to a default cover held in your super fund , it’s more important than ever to take a close look at your policy or consider taking out more comprehensive, tailored cover before the price hike and new regulations kick in later this year.”

Eddie also notes that, despite premium hikes across the board, there are ways to reduce your premium without putting you or your family at risk with an unsuitable policy.

“Ultimately, if you are looking to reduce your premiums, there will need to be a level of sacrifice or “self-insurance” but it’s worth paying close attention to the details in your policy to find areas where you may be able to save,” he says.

“For example, you could extend the time off required before income protection kicks in from 30 to 90 days provided you are financially secure enough. In some cases, this could save you around 30 per cent on your premiums.

“Searching around the market for a better deal is obviously another way to save but requires careful consideration as like-for-like comparisons are difficult between different insurance products.”

Finding the right cover for your needs

Not all income protection insurance policies are created equal and there are different options that will be appropriate depending on your circumstances.

When assessing which option is appropriate for you, it’s important to understand your current circumstances, what changes there may in in your life in the near future and what you’re actually needing to protect.

For example, a young professional working in salaried employment who already has a level of cover through their super fund will have entirely different requirements to that of a surgeon with two young kids at school and who requires a far greater level of cover.

Ultimately, Eddie says it’s important to know what to look for and to take the time to find a credible provider that can tailor a policy to your personal circumstances.

“No matter what stage you are at in life, you want to make sure the cover you have is what you expect it to be,” he says.

“If something were to happen, the last thing you and your family will want to deal with at that time is an insurance policy that contains clauses or limitations that you weren’t aware of and that leaves you out in the cold.”

Talk to our Life Risk Protection Team

Eddie Bell

Eddie Bell

Eddie provides tailored advice to clients on their personal and business risk insurance needs. His client’s unique situation is at the forefront of every risk protection strategy he puts forward.

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