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Insurance companies hike Income Protection premiums by an average of 39%

Updated 05/09/2023
Insurance companies hike Income Protection premiums by an average of 39%

Small business owners, sole traders and other professions who hold Income Protection - a type of life insurance that pays a percentage of their wage in the event of illness or injury - are being priced out of their policies by insurers looking to remove ‘unprofitable’ customers from their books.

In one instance, Compare Club found a sole trader whose premiums had increased by 330% in a year, while some people were quoted over $1,100 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

Many Income Protection policies today still offer an affordable 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 here is Income Protection holders, who are traditionally blue collar and self-employed workers, 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,” said Lisa Varker, Senior Financial Advisor at Compare Club. 

“These premium increases that we’ve seen in the past year and a half have been astonishing, in many cases pricing those who need the policies most, out of the market. It goes against the Australian sense of fair play at a time when every cent a household spends needs to give them value for money. 

“Income protection cover can be a lifeline for many households, especially if they’re worried about how to cover the mortgage if their wage was to disappear due to illness or injury, which 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, it would be more costly for many households to be unprotected should life throw a curveball. 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.”

Top tips for finding value for money on Income Protection policies

  1. Weigh up waiting periods. Longer waiting periods cost less but you may have to wait 3 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.

  2. 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.

  3. 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.

  4. 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

  5. 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.

For more information visit Compare Club's Guide To Income Protection.

Notes for the editor:

Compare Club's Income Protection specialist Lisa Varker is available for interview. Premium calculated on a healthy, non-smoking 42-year-old self-employed tradesman in Western Sydney on an average salary of $95,000 with a stepped premium paid outside of super with a two year benefit period.

Media enquiries Marietta Delvecchio & Cassandra Geselle Media + Capital Partners press@compareclub.com.au