Time to read : 5 Minutes
Income protection premiums on policies taken out before October 2021 have skyrocketed by an average of 39%, leaving small business owners, sole traders, and blue-collar workers struggling to afford this crucial coverage.
Compare Club data reveals that some Australians are now paying up to $2,554* more per year just to maintain their income protection policies.
These policies, designed to provide financial security in the event of illness or injury, are fast becoming a burden for many hardworking families.
The importance of income protection cover
So what does Income Protection cover?
Back injuries, broken bones, and mental health issues are just a few of the common reasons people rely on income protection cover.
Recovery from illnesses such as cancer or heart disease are also covered by most income protection policies.
These policies can be a financial lifeline for many Australians - especially anybody who is self employed or needs to be physically active as part of their job.
With some policies paying out up to 90% of your monthly income for the first six months being priced out of their current income protection policies could mean hardworking Aussies and their families end up in dire financial straits.
My view: this goes against the Australian sense of fair play. Income protection policyholders, who are traditionally blue-collar and self-employed workers, are being priced out of the market by insurers looking to shed older policies that may lead to higher claims costs.
How much more will premiums cost now?
Specific premium amounts depend on your own unique circumstances, but some sole traders have received notices stating that their premiums are increasing by a mind-boggling 330% this year.
Others are discovering monthly premium hikes of over $1,100 since industry regulator APRA forced insurers to make changes to their policies.
These products allowed some people to stay on Income Protection for the rest of their working life, meaning insurers were losing money on them.
It’s not our fault that the life insurance industry had flaws in their products, but as some insurers look to get older customers off their books, for many households, the only alternative is personal savings - and the cost of living crisis has seen these eroded for many Aussie families.
Can the insurers just change my policy like that?
Unfortunately, yes - but don’t give up. Although premiums are rising, affordable income protection policies are still available.
Compare Club’s life cover brokers can help you navigate what can often be a complicated product to find policies that truly offer value for your money.
And if you're in need of a helping hand, I asked my colleague and Income Protection specialist Lisa Varker on how to keep your premiums low,.
Top tips to keep your Income Protection premiums affordable.
1. Weigh up waiting periods: Longer waiting periods may lower your costs, but be prepared for substantial delays before making a claim. Shorter waiting periods can be more expensive but offer quicker access to your benefits.
2. Adjust and compare: Some policies offer extra benefits that can be excluded to reduce your premium. Consult a financial professional when making adjustments, especially if you’re a sole trader.
3. Pay close attention to payout levels: Understanding your payout structures is vital. Some policies allow claims of up to 90% of your salary for the first few months, while others may significantly decrease your payments after a set period. Also, be aware of any maximum claim limits imposed by insurers.
4. You don't need the maximum sum insured: Tailor your policy to your needs by opting for a lower sum insured that aligns with your financial requirements.
5. Seek advice from your accountant: You may be able to claim income protection premiums on your tax return if you haven't already claimed on your policy.
Disclaimer: This article is opinion only. Always check with a financial professional before making a decision. Compare Club does not compare all Income Protection policies from all insurers available in market.
Based on Compare Club internal analysis of client Income Protection premiums from pre-October 2021 to July 2023.
