Time to read : 3 Minutes
Insurance companies are hiking Income Protection premiums by an average of 39%, putting it out of reach for those who need it most.
Compare Club data reveals blue-collar workers and self-employed Australians are being forced to spend up to $2554 more per year on Income Protection.
It seems insurers may be looking to remove 'unprofitable' customers, by pricing small business owners, sole traders and other professionals out of Income Protection insurance.
Key points (TL;DR):
Compare Club research reveals higher costs for Income Protection insurance
Premiums increased of up to 330% reported in just one year
Some quotes for coverage were over $1100 more per month
Concerns arise for Australians who rely on this insurance for financial support in times of illness or injury
APRA's requested changes may affect policyholders
Life insurance adviser Lisa Varker urges you to consult a financial professional or broker for policy evaluation and comparison
One sole trader's premiums increased by 330% in a year, according to Compare Club research, while some people were quoted over $1100 a month more for their cover.
Common Income Protection claims include back injuries, broken bones, and mental health. These issues can keep people off work for months or even years, meaning they’ll no longer be earning an income. Some policies available today can cover up to 90% of your monthly income for the first six months, and a further 70% thereafter.
Financial regulator APRA requested changes to Income Protection policies in October 2021 due to concerns about the long-term viability of the product. The changes requested by APRA included:
ongoing payouts capped at 70% of the person’s income (previously 75%)
changes to the benefit periods, which made it more difficult for people to claim on a policy for an indefinite period of time
bans to the “bells and whistles” type extra benefits
the ban of agreed value contracts, where the insurance provider promises to pay you a percentage of your income if you ever have to make a claim.
Typically, Income Protection policies provide an essential safety net for working Australians. But anybody who took out this type of cover before 1 October 2021 is likely to have a policy that offers much better value for money.
“We were shocked when we looked back through our Income Protection book. What we’re seeing is that Income Protection holders, who are traditionally blue collar and self-employed workers, are being priced out of the market by insurers looking to divest themselves of older policies that could cost these companies more in the event of a claim,” says Compare Club life insurance adviser Lisa Varker.
“The premium increases we’ve seen in the past year and a half have been astonishing. Quite often those who need the policies most are being priced out of the market. It goes against the Australian sense of fair play. Even worse, it's happening at a time when every household needs value for money from every cent they spend.
“Income Protection cover can be a lifeline for many households – especially if they’re worried about how to cover the mortgage if their wage disappears due to illness or injury. This is why we’d urge anybody with these policies to speak to a financial professional or brokers like Compare Club, who can help them sort through the jargon and easily compare policies side by side.
“The cost of living is not getting any cheaper. And, should life throw them a curveball, it would be more costly for many households to be unprotected. A non-smoking tradie in their 40s on an average salary would be looking at paying an average of $299 per month in premiums if they want to be covered until retirement.
“Premiums vary a lot depending on the individual but there are still lots of excellent value-for-money policies on the market. So Australians looking to save money on their Income Protection premiums need to be looking for a better deal right now.”
The Bottom Line
If you want to find value for money on Income Protection insurance, Lisa Varker suggests you:
weigh up waiting periods. Longer waiting periods cost less but you may have to wait three months or longer before you can make a claim, so you’ll need to be confident you have a savings buffer. Shorter waiting periods are more expensive but you can usually start claiming after a month.
adjust and compare. Some extra benefits can be removed or not included to make premiums more affordable. Speak to a financial professional before you do this though.
pay close attention to payout levels. Some policies let you claim 90% of your salary for the first three to six months, while others may drop to under 60% after a period of time. Some insurers also have a maximum amount you can claim. Again, ask a financial professional to help understand your options.
you don’t have to have the maximum sum insured available. You can have a lower sum insured, if you can live off of a lower income
speak to your accountant. You can get Income Protection premiums back on your tax return if you’ve not made a claim on your policy.
Financial disclaimer
The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.
