We understand that doctors and medical practitioners tend to have longer career spans than most other professions, typically choosing to work into the older age brackets. We also understand that you will often risk neglecting yourself to focus on the wellbeing of your patients. As a doctor, you are also more prone to different risk factors that can harm your health and safety such as exposure to illnesses, chemicals, procedures and dangerous equipment.

Income protection is the safety net that protects your financial future in the event of disability, injury, or sickness. This type of insurance guarantees your ability to earn an income during recovery so that you can still cover your living expenses, bills and the needs of your family.

Recently, the Australian Prudential Regulatory Authority (APRA) has announced a number of key changes to Income Protection policies that come into effect as of 1 October 2021.

Here’s what you need to know if you are looking to purchase Income Protection or would like to modify your existing plan.

What changes are APRA making to Income Protection?

The Insurance sector has been through a difficult period. APRA stated recently that Life Insurance providers collectively recorded $3.4 billion losses over the last five years up until December 2019.

To address pricing issues, improve product design features and safeguard the long-term sustainability of insurance providers, APRA has mandated new guidelines that will soon become the industry standard.

The first of these changes has already been implemented. As of 31 March 2020, Insurance providers no longer offer agreed value Income Protection policies.

From 1 October 2021, the following changes will also apply:

  • Income at risk
    In the event of disability, sickness or injury, Income Protection policyholders with a predominantly stable income will now receive a disability income based on annual earnings at the time of the claim, not older than 12 months prior to claim.

    On the other hand, those with a variable or unstable income will receive a disability income based on their average annual earnings over a period of time (can be longer than 12 months) – this will take into account the nature of their occupation and future earnings lost because of their disability.

  • Income replacement ratio
    To ensure that benefits will not exceed 100% of earnings, income replacement will be capped to a maximum of 90% of earnings in the first 6 months of the claim and then capped at 70% thereafter.

How will APRA’s changes to Income Protection affect Doctors and medical practitioners like you?

Here are some examples to demonstrate the impact of these upcoming changes specific to your situation:

  • Case Study 1: Income at risk
    If you are a doctor who performs elective surgery, it’s likely that you performed fewer operations during the course of the pandemic. This would have potentially resulted in a lower annual income.

    Let’s assume now that you will purchase Income Protection after 1 October 2021. In the event of a disability, sickness or injury, your benefit will be based on your insurable income over the last 12 months – that is, the period where you earned a lower income. Based on the new changes, you can expect to receive a lower benefit per month regardless of how much you may have earned in the previous 2 or 3 years.

  • Case Study 2: Income replacement ratio
    Let’s say you are an Anaesthetist who is earning $250,000 per annum. Before 1 October 2021, you can take out a new policy up to a maximum of 75% of your income. With supplementary benefits, it’s possible that you could receive 100% of your pre-disability income.

    However, under the new rules, your Income Protection policy will only cover you for 90% of your pre-disability earnings for the first 6 months. After this, the benefits you will receive will drop down to 70%.

What are the advantages of APRA’s changes?

APRA’s aim is to stabilise the industry through these upcoming changes. By helping insurers manage risks and address pricing issues, the retail insurance market can continue delivering effective insurance products in the future.

Nevertheless, if you prefer the flexible terms of a more comprehensive policy, make sure you purchase Income Protection before 1 October 2021.

Get advice that suits your situation

This factsheet is a guide only, and does not represent professional advice. The team at Doctors Wealth Management can review your situation and recommend a solution for your individual circumstances. You can find additional resources and information about Doctors Wealth Management at doctorswealthmanagement.com.au or call 1800 128 268. The changes to income protection cover by the Australian Prudential Regulatory Authority (APRA) described in this factsheet are an overview only and is not a comprehensive description of all the changes being made by APRA.

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Important disclaimer: The material contained in this publication is of general nature only. It is not, nor is intended to be legal, accounting, tax or financial advice. Doctors Financial Services Pty Ltd (DFS) and its related entities have not considered your individual objectives, financial situation and needs in providing this information. If you wish to take any action based on the content of this publication we recommend that you seek appropriate professional advice. While we endeavour to ensure that this information is as current as possible at the time of publication, we take no responsibility for matters arising from changed circumstances, information or material. DFS and its related entities will not be liable for any loss or damage, however caused (including through negligence), that may be directly or indirectly suffered by you or anyone else in connection with the use of information provided. Doctors Wealth Management is a registered business name of Doctors Financial Services Pty Ltd ABN 56 610 510 328, AFSL 487758. Doctors Wealth Management Financial Advisers are Authorised Representatives of DFS.

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