From 31 March 2020, a raft of new changes around the design and pricing of Income Protection insurance (IP) will come into effect and it is essential those working in Queensland’s health sector know exactly what this means for them.
The changes focus, in particular, on Agreed Value contracts where the level of cover provided reflects a person’s income prior to their application for Income Protection, rather than reflecting their actual income at the time of a claim.
Why the changes?
APRA has designed the changes to Income Protection insurance to address growing losses in this sector. In the nine months to 30 September 2019, this industry recorded losses of $1 billion taking the cumulative losses for the past five years to $3.4 billion.
APRA has stated that Income Protection insurance, as it is currently offered, is no longer sustainable and must change. This is why they have introduced the changes to Agreed Value contracts.
What will change?
From 31 March 2020, insurance companies will no longer be able to offer Agreed Value Income Protection insurance policies where the benefits are not based on the income of the claimant at the time of the claim, as has traditionally been the case with many Agreed Value contracts.
From this date, the payment an individual can receive through an IP insurance claim must reflect their income at this time, rather than their income when they first applied for the policy.
This means that if your income fluctuates – or you were planning a career transition to study overseas, move into private practice or take extended leave – you may no longer be entitled to the same level of cover you once enjoyed.
Why this matters for surgeons?
Currently several medical-specific insurance policies offer newly qualified medical specialists IP insurance as well as doctor-in-training packages which are not expected to be available in the future. Moreover, doctors in private practice will no longer be able to ‘lock in’ a guaranteed monthly income protection benefit.
As a highly mobile sector, those working in medicine have traditionally enjoyed a high level of flexibility when it comes to decisions around career and personal choices from taking on Fellowships, to pursuing additional study or extending the family.
For surgeons who have IP insurance or are looking to obtain cover, it is critical to understand what insurance you are entitled to in order to protect your lifestyle.
What you need to do
Each individual should start by reviewing their IP insurance before the changes come into effect on 31 March 2020.
This is the most effective way of ensuring you are not caught unawares and potentially under-insured.
There may be a range of other ways to protect your income, assets and lifestyle which your financial planner can assist you with.