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Changes to Income Protection Insurance for Doctors in 2021

🕑 4 minutes read


Income Protection insurance plays a pivotal role in insuring your greatest asset – your ability to earn an income.

The majority of doctors have not had to claim on their income protection insurance, however knowing their income is protected provides peace of mind should against suffering an insurable event and being unable to work.

The reality is, doctors need to claim on their income protection too

Each year we continue to see many income protection claims due to significant illness or injury.

A newly released industry-wide analysis carried out by the Financial Services Council (FSC), in conjunction with KPMG, revealed that life insurers paid out $4.9 billion of retail protection claim benefits from 2014-2018.
This is double the average annual payment of the preceding five-year period (2009 – 2013). The average length of time for a person being on claim has also increased by 36 percent in 2018 compared to 2013.

Source: KPMG 2020 Joint study reveals large rise in life insurance claims costs

The increase in claims and other market factors, such as low interest rates, has severely impacted insurers ability to remain financially viable in recent years, especially on income protection insurance, which has led to significant rate increases being applied by many insurers.

Even with significant rate increases, insurers continue to voice concerns about the profitability, or lack thereof, of the current income protection market.

The income protection sector is under scrutiny and doctors will be affected

The issues associated with income protection policies across the entire insurance sector has led the Australian Prudential Regulation Authority (APRA) to investigate the causes and provide guidance to insurers, enabling changes to income protection products to ensure they are sustainable moving forward. The APRA instructions will enact some of the most significant changes to income protection that the Australian market has ever seen.

The changes to income protection policies has already begun

The initial phase of these changes was introduced on 1 April 2020, with agreed value policies being removed from sale by all Australian insurers.

Since then, any new policies must be offered under an indemnity definition, which refers to how your income is assessed in the event of a claim.

Indemnity definitions require you to provide evidence of your income when making a claim. While policies vary from insurer to insurer, some of the most generous policies allow you to look back at the three previous years preceding your claim, using the highest earning 12 months of income within that three year period. Alternatively, agreed value policies do not require you to provide any financial evidence in the event of a claim to justify your income.

The industry’s switch to indemnity policies is designed to ensure policy holders are not able to lodge claims for income greater than their current earning capacity.

What doctors need to be aware of

The direction of APRA guidelines, and subsequent policy updates thus far, shows a potential movement towards increasingly restrictive income protection policies in the near future. The industry is currently under consultation with APRA regarding further changes, outlined to occur 1 October 2021.

It is important to note that at some stage between now and then, if you don’t have a recent or updated income protection policy in place already, it may be a good idea to start a conversation with an insurance professional to explore the options that are currently available.

If you have a policy in place but haven’t reviewed it in quite some time, it is the perfect time to review your needs and circumstances to assess what the changes mean for you in the future.

If you’d like to know more or have a better understanding about the likely changes and how they will impact you, call 1800 093 485 or book in for a complimentary no-obligation initial consultation.

Disclaimer: * The information contained in this site is general and is not intended to serve as advice as your personal circumstances have not been considered. DPM Financial Services Group recommends you obtain personal advice concerning specific matters before making a decision.

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