If your household relies on your income to pay the mortgage, bills, put food on the table and have some sort of lifestyle then it is very important that you read on.
In the past we may have discussed with you the benefits of taking out an income protection policy, or you may have thought about it, but put it off for another day. Well that day is fast approaching as there are very big changes about to occur, beginning in July 2021.
Please continue reading if you want more detail about these changes. But if you want to make sure you have the best possible income protection cover, BEFORE IT’S TOO LATE, I urge you to contact us for a no-obligation chat.
Please note that when I talk about income protection policies I am NOT talking about Salary Continuance or IP that you may have as part of your Industry Super Fund, or policies you buy over the phone or internet. None of these policies have been underwritten and the terms and conditions are already at the discretion of the Trustee or insurance company and can be changed retrospectively.
The policies I am talking about are the retail, comprehensive, fully underwritten income protection policies that advisers have had access to for many decades.
For those of you not aware of what this type of income protection policy is, let me summarise:
It is fully underwritten – which means you answer a whole lot of questions about your occupation, age, income, health and pastimes when you apply. You may even need to have blood tests or the insurance company may contact your doctor for a report on your health.
The benefit of having a fully underwritten policy is that once the insurance company accept your application then you have certainty that you will be paid when you make a claim. The other benefit is that the insurance companies only underwrite you when you apply. You don’t have to tell them if you develop any health issues along the way, and it won’t affect you being able to claim.
The insurance company cannot change the terms and conditions once the policy is in place, and they cannot cancel the policy no matter what changes occur to your health, pastimes, occupation or income. The only way the policy can be cancelled is if you stop paying the premiums or if you deliberately lie on your application.
But the landscape is about to change for new income protection policies taken out from July 2021.
Policies will only be offered for a contract term of 5 years.
At the end of the term you will be underwritten again answering questions about your income, occupation, financial circumstances and any hazardous activities you have taken up. We have been advised that you will not need to answer any health questions.
The new terms and conditions offered will be based on what the insurance company is offering at the time. Let’s be clear about this, it is extremely unlikely that over time the terms and conditions are going to become MORE favourable to consumers, but rather the other way around.
Let’s fast forward to July 2026 when your policy comes to the end of its 5 year term. You haven’t changed occupation, your financial circumstances remain the same and you haven’t decided to take up any hazardous activities so all should be fine. You have, however, developed Type II Diabetes in the last 5 years, but this is okay as you don’t need to disclose health information. Then you receive the new policy and you have to hope the terms and conditions are the same as the ones you already have.
However, you find that they have changed considerably and you are not happy. But you are now stuck with this policy, and the less favourable terms and conditions because of your health issue. Any other insurance provider would either exclude your pre-existing illness from the policy, load the premium or decline the cover.
Under the current rules, it would also be difficult to change insurance companies once you have developed something like Type II Diabetes, however at least you know that the terms and conditions you agreed to when taking out the policy cannot be changed which provides peace of mind and certainty.
These changes are coming this year, but any new policies put in place prior to the changes taking place will be honoured, and not affected going forward.
We’re about helping people live their best life by providing guidance around all things financial. Whether it’s personal or business decisions, big or small, if it relates to money and life, that’s what we do.
BCV Financial Solutions 3/72-76 Dandenong Rd West Frankston, Victoria, 3199
POSTAL ADDRESS PO Box 2663, Seaford, Victoria, 3198
Mon – Thur: 9am – 5pm Friday: 9am – 4pm After hours by appointment.