No More Agreed Value Income Protection Policies
In April 2020, we saw a major change hit the Life Insurance Industry. The Australian Prudential Regulation Authority (APRA) decided to intervene after $3.4 billion plus of losses imposed by insurers from Income Protection products over the proceeding 5 years. APRA’s concerns were over the sustainability of Income Protection products over the long term. Their concern was that losses would result in consumers receiving large premium increases on their policies.
From 31 March 2020, APRA stated it expected insurers to cease offering ‘Agreed Value’ Income Protection policies. Clients with ‘Agreed Value’ policies already in force can maintain them going forward. New policies applied for from 1 April 2020 would have an ‘Indemnity Value’ definition rather than an ‘Agreed Value’ definition.
What is the difference between Agreed Value and Indemnity Value?
- Agreed Value cover pays out an agreed monthly benefit amount based on your income at application time, rather than at claim time. It is important to ensure your agreed value policy is endorsed to ensure a smoother claims experience.
- Indemnity Value cover determines your monthly benefit based on your earnings at claim time. If your income has reduced at the time of claim, the payout you receive at claim time may be reduced based on your current circumstances.
*Any information provided on this page should be considered a summary and general advice only. All information should be verified via the relevant Product Disclosure Statement (PDS).