{"id":49626,"date":"2020-04-17T10:22:20","date_gmt":"2020-04-16T23:22:20","guid":{"rendered":"https:\/\/riskinfo.com.au\/news\/?p=49626"},"modified":"2020-04-21T17:28:10","modified_gmt":"2020-04-21T06:28:10","slug":"structuring-income-protection-cover-for-self-employed-clients-after-31-march-2020","status":"publish","type":"post","link":"https:\/\/riskinfo.com.au\/news\/2020\/04\/17\/structuring-income-protection-cover-for-self-employed-clients-after-31-march-2020\/","title":{"rendered":"Structuring Income Protection Cover for Self-employed Clients After 31 March 2020"},"content":{"rendered":"
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The removal of new agreed value income protection contracts from 31 March 2020\u00b9 leaves indemnity policies as the sole contract type available in the market. But does this change the way we think about structuring IP cover? This article from BT’s Ben Martin will tease out some of the advice implications stemming from the removal of agreed value IP after 31 March 2020…<\/h3>\n<\/div>\n<\/div>\n

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You\u2019ve probably already considered which cohort of clients is likely to be affected by the removal of agreed value IP.\u00a0 Intuitively, it will be those with fluctuating levels of income, such as self-employed individuals and contractors; and given the current uncertainty in the job market and challenging business environment, it\u2019s indeed important to weigh up the impacts of different IP strategies for such clients. What is your starting point when considering where to house IP cover after 31 March 2020?\u00a0 Inside or outside of the super environment, or a combination of the two?<\/p>\n

What is your starting point when considering where to house IP cover after 31 March 2020?<\/p><\/blockquote>\n

While there is no right or wrong answer, the default position may be to house the IP cover within super, especially now that agreed value IP is no longer an option. Doing so obviously brings superannuation law conditions of release considerations into play.<\/p>\n

For self-employed or contractor clients, it means that if at the time the disablement occurs, the contractor wasn\u2019t engaged in paid work, or if the self-employed client\u2019s enterprise has since come to an end, the temporary incapacity condition of release won\u2019t be satisfied.\u00a0 This is because \u2018temporary incapacity\u2019 requires that the client ceases work due to illness or injury.\u00a0 If they have ceased work prior to becoming disabled, this condition cannot be satisfied.\u00a0\u00a0 Claim proceeds will not be payable, as under the Stronger Super measures in place since 1 July 2014, and cover can only be offered by the super trustee, where one of four conditions of release can be met \u2013 one of these being temporary incapacity.<\/p>\n

…the non-super policy provides a second line of defence<\/p><\/blockquote>\n

To combat this risk, one option is to \u2018link\u2019 IP benefits under two policies held inside and outside of superannuation.\u00a0 In doing so, the majority of the premium is funded from retirement savings and the non-super policy provides a second line of defence, in the event that the temporary incapacity condition of release isn\u2019t satisfied.<\/p>\n

While the prospect of holding most of the IP cover inside super resonates with many clients, as part of the decision-making process advisers should consider the impact of the premiums on the underlying retirement savings, particularly when advising self-employed clients. Some key points to note are listed below.<\/p>\n