At Platinum Strategies we hold large concerns for the proposed changes to income protection for the future, and clients needing downside protection should they not have the ability to earn an income.
According to the Australian Prudential Regulation Authority, aka APRA, changes proposed for the 1st of July 2021, will reduce the ability for people to hold a benefit period to age 65.
Policies taken out after this date, would have a maximum benefit payable period of five years only. It is important to note that all policies put into place prior to this time will have the ability to hold a benefit period till age 65 and be grandfathered with no effects.
Proposed income protection changes also will include limits of 100% of your income replacement benefit for the first six months and 75% thereafter, with a total limit of $30,000 per month. This will directly effect high income earners and people that are self-employed.
History behind income protection and the purpose of it is to provide an annual salary for people who are unable to work due to injury or sickness for a certain period of time. This is there to replace their annual salary when they take out cover. Income protection is used as downside protection in the event that they do not have the ability to derive an income, therefore do not have the ability to meet their fixed and variable expenses.
Should people have no income protection in place and do become injured, they will become reliant on work cover policies to derive an income, therefore increasing risk that they will not be able to meet their financial obligations, nor achieve their goals and objectives for the future. People susceptible to these changes are people that are young and have a long financial earning career ahead of them, self-employed people with variable incomes, and high income earners. It is also of concern for people that are running a policy in conjunction with another inside a super fund. This may be applicable to people that hold government contracts. This move to change the policies for the future is unprecedented and will subsequently have unintended consequences for clients losing cover.
Should any of these changes resonate with people, it is very important that they engage their advisor to review their current contract, or engage an advisor to take out an appropriate policy.