Keep your head above water
Money Magazine Australia|October 2020
Keep your head above water
With the pandemic taking its toll on wellbeing as well as finances, it’s more important than ever to have appropriate protection

Insurance premiums are on the rise and insurers agree that mental health claims have played a part in this increase. Experts, however, are warning against cancelling your policies during such challenging times.

Income protection, or salary continuance, insurance has risen the most dramatically. Michael Nowak, a Brisbane-based adviser and vice-president of the Association of Financial Advisers, says over the past couple of years a conservative estimate is that income protection premiums have risen on average 10%-20% a year, with some insurers increasing their prices by 50%.

“The increases are at a level they’ve never been before and there are a lot of concerns from consumers. You do get worried about their confidence in life insurance,” he says.

“In terms of the influence of Covid-19, the impact has been that disposable spending is affected and this has led people to look at cancelling their insurance or, if they have an adviser, reviewing it and making adjustments to make sure they are appropriately protected but can also balance the cost and come to a solution that meets their needs and budget.”

It’s not a new situation, he says. “Every year we’re engaging with clients to ensure they remain covered, but we do have to take into consideration budgets. That means reducing benefits or removing features.”

Agreed value v indemnity

One benefit that has already been removed for new income protection products, from April 1, 2020, is the agreed value policy, which has been replaced by the indemnity policy. This means policyholders will need to have proof of the income they have been earning for three to 12 months before a claim.

Agreed policies provide a more predictable outcome because at claim time the value of the payout has been previously set.

Indemnity policies create a level of uncertainty, especially now. Self-employed people who have had their income drastically reduced during the pandemic or employees who have lost work or a job might find it difficult to prove their income.

Anyone who currently holds an agreed value policy can continue to renew it, although it is likely to be subject to big price hikes.

Work stress hits home

Claiming for mental illness can be protracted, as there are many more grey areas than in a claim for a heart condition, cancer or accident, where the treatments are easier to prove and better understood.

Nowak recently had a client who held a senior position in an organisation and was being forced to do things within the business that they felt weren’t being dealt with appropriately and carried a reputational risk. The client suffered stress, sought help, left the business and subsequently submitted an insurance claim. The policy was for “own occupation” rather than “any occupation”, and because the client was no longer able to work in that occupation the claim was paid.

“Before a claim is made they have to have ceased work and be under medical treatment,” Nowak says. “A medical professional needs to state that, in their view, the client’s condition means they are unable to fulfill their role.”


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October 2020