Income Protection premium hikes putting it out of reach for those that need it most, Compare Club finds

SMB 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 priced out of their policies by insurers looking to remove ‘unprofitable’ clients from their books.

What were the findings of Compare Club’s research?

In one instance, Compare Club found a sole trader whose premiums had increased by 330% in a year, while others were quoted over $1,100 a month more for their cover. Common Income Protection claims include back injuries, broken bones, and mental health. The issues can keep people off work for months or years, meaning they’ll no longer earn 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 Australian Prudential Regulation Authority (APRA) requested changes to Income Protection policies in October 2021 due to concerns about the long-term viability of the product. The changes requested 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 across the country, 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.

What were the thoughts of Compare Club on the findings?

Commenting on the research findings, Lisa Varker, Life Insurance Advisor at Compare Club, commented, “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.”

“The increases 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 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 like Compare Club, who can help them sort through the jargon and easily compare policies side by side.”

“The cost of living isn’t getting any cheaper, it would be more costly to be unprotected should life throw a curveball. A non-smoking tradie in their 40s on an average salary would be looking at paying about $299 per month in premiums 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,” Lisa Varker further said.

How to find value for money on income protection?

  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. 

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