For the large majority of Australians in the workforce our ability to earn an income is our greatest and sole financial asset. The loss of our ability to work and generate an income can have serious repercussions on our financial stability and our goals for the future. Medical and health problems can often leave an individual unable to work. The impact of a serious injury or illness can be offset through the purchase of an Income Insurance policy.

Income Insurance benefits are payable for events that have a short duration for example; a recovery from surgery, right through to events that take a longer duration to recover from such as cancer or an accident or events that impact a worker’s ability to work the number of hours they were previous capable of working prior to the accident.

According to statistics from the Financial Services Council (FSC), in 2019, there was a total of 5.8 million Income Insurance policies in force with 95% of lodged claims paid, 33% of which were the consequence of accidents.

Over time insurance companies have extended the additional benefits to include products which, along with the increasing cost of claims, this has meant that some products have become completely unsustainable. As such, the Australian Prudential Regulation Authority (APRA) has directed changes to support the long-term financial profitability and sustainability of Income Insurance.  

Currently only 36 percent of Australians are in a position to live off their savings for a period of four months or more if they were to lose access to their source of income.

16 percent or around two million Australians are currently living day-to-day and they would only be capable of surviving for one week if they were to lose their jobs.

At the present time, new Income Insurance policies are all offered on an indemnity basis, this means you have the choice of looking at your earnings from the past 12 months, or up to 3 years prior to the date of the event which caused your disability. From the 1st October, this assessment of income prior to the date of the individual’s disability is likely to be more restrictive.

From 1st October 2021, the maximum income you will be able to receive from all sources will be capped at 90 percent for the first six months, with a maximum of 70 percent for all subsequent periods.

At the moment, the majority of Income Insurance products available through your Financial Advisor are guaranteed renewable and once commenced, the terms of the contract remain in-force.  

For policies that were taken out prior to 1st October 2021, you will be required to readvise your insurer of your occupation, income and pastimes as intervals (which are still yet to be determined). This might then result in your Income Insurance cover you hold being adjusted, including your premium, to reflect the changes in your circumstances. 

At the present time, the best Income Insurance policies offer several ways to claim against your policy. For example, to work more than 10 hours per week, or not being able to perform an important duty that is part of your occupation. For policies taken out after 1st October 2021, the definitions related to disability may result in these being more restrictive.  

Income Insurance policies applied for before 1st October 2021 will have their terms ‘Grandfathered’, this means that any existing ‘more generous’ terms will remain in place under the policy. 

The team at C&D Restructure and Taxation Advisory are here to help. As part of the Vault Group we can offer the full suite of financial products and advice to help you navigate the business landscape. Schedule a meeting here via Calendly or give us a call on 07 36086800. 

The team at C&D Restructure and Taxation Advisory are here to help. As part of the Vault Group we can offer the full suite of financial products and advice to help you navigate the business landscape. Schedule a meeting here via Calendly or give us a call on 1300 1 VAULT (1300 182 858)

Post Author: Craig Dangar

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