{"id":59221,"date":"2022-01-20T11:16:05","date_gmt":"2022-01-20T00:16:05","guid":{"rendered":"https:\/\/riskinfo.com.au\/news\/?p=59221"},"modified":"2024-10-30T08:44:14","modified_gmt":"2024-10-29T22:44:14","slug":"the-top-five-things-to-consider-when-comparing-income-protection-products","status":"publish","type":"post","link":"https:\/\/riskinfo.com.au\/news\/2022\/01\/20\/the-top-five-things-to-consider-when-comparing-income-protection-products\/","title":{"rendered":"The Top Five Things to Consider When Comparing Income Protection Products"},"content":{"rendered":"\n
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MetLife’s Dr Jeffrey Scott shares with advisers an excellent summary of five key factors that should be taken into account when deciding which income protection insurance products will deliver the right solution for your clients following the raft of changes to IP products that were implemented in October 2021…<\/h3>\n<\/div>\n<\/div>\n

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The recent introduction of APRA\u2019s Individual Disability Income Insurance (IDII) measures has seen a raft of product changes in the market, with some Income Protection (IP) products becoming significantly more competitive.1<\/sup><\/p>\n

With so many insurers updating their retail IP products at the one time, it can be quite confusing to compare all the new products and variations, to assess what\u2019s right for the client.<\/p>\n

To make this process easier, MetLife Australia\u2019s Jeff Scott, Head of Adviser Strategy, suggests five key factors financial advisers should consider when assessing which products best suit their clients\u2019 needs:<\/p>\n

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  1. Benefit offsets<\/strong><\/li>\n<\/ol>\n

    Depending on the retail IP policy selected, the monthly benefit paid to the life insured (or policyholder) may be reduced by other deemed income. This deemed income has the potential to significantly reduce the monthly benefit paid. As each life insurance company has different benefit offsets, financial advisers should familiarise themselves with the differences between each company.<\/p>\n

    Benefit offsets may include, but are not limited to: income from personal exertion, income earned in the conduct of the business, unaffected business income, the share of income and profit that continues from a business, sick leave, long service leave, annual leave, workers compensation, consumer credit insurance benefits, disability support pension, other social security payments, interest, dividend or rent, other investment income or capital gains, ongoing contractual royalties or annuities, other similar recurrent income and other income replacement insurance.2<\/sup><\/p>\n

    2. Replacement ratio<\/strong><\/p>\n

    APRA\u2019s IDII measures state that up to 90% of pre-disability income could be replaced in the first 6 months of the benefit period, and up to 70% of pre-disability income thereafter.3<\/sup> Financial advisers should be aware that not every life insurance company has adopted the same approach, and some products have a replacement ratio below 70% (say, 60%), at a particular age (for example, age 60), or after a particular duration on claim (such as, two years).4<\/sup><\/p>\n

    3. Income tiering<\/strong><\/p>\n

    While the indicative replacement ratio as stipulated by the APRA IDII measures is no more than 70% after the first 6 months on claim, some companies may have adopted a tiering approach.5<\/sup><\/p>\n

    Companies that do not have income tiering provide a simple 70% income replacement ratio up to a maximum monthly benefit (for example $30,000 per month).\u00a0 This would result in a client being able to obtain a 70% replacement ratio for income up to approximately $514,285 which could produce an annual benefit of up to $360,000 per annum.\u00a0 Income tiering reduces the replacement ratio below 70% for customers on higher incomes (usually above $250,000).\u00a0 For example:<\/p>\n

    \"\"<\/a><\/p>\n

    In the above example, if a customer earns $500,000 per annum, then the replacement ratio with income tiering will be 53.6% ($268,000 per annum) \u2013 and any client who earns more than $240,000 per annum will never have a complete 70% of their income covered.\u00a0 Alternatively, the same customer that owns a policy without income tiering would have an annual benefit of $350,000 paid while on claim (70% replacement ratio).<\/p>\n

    Financial advisers should check with each insurer to determine if income tiering applies and how this may affect their clients at claim time.<\/p>\n

    4. Usual occupation vs any occupation<\/strong><\/p>\n

    Most insurers assess the life insured\u2019s ability to work in gainful employment based on their usual occupation (also referred to as \u2018own occupation\u2019) at date of disablement. However, some insurers amend this criteria to an \u2018any occupation\u2019 definition once the customer has been on claim for a defined period of time (often 2 years).6<\/sup>\u00a0 The \u201cany occupation\u201d definition of disablement examines the ability of a customer who is on claim to perform any reasonable occupation the customer is able to perform based upon their previous education, their previous experience, their previous training and any other reasonable training.\u00a0 Changing the assessment criteria for a customer on an income protection claim from an \u201cown occupation\u201d to an \u201cany occupation\u201d definition is likely to cause uncertainty and anxiety with customers, as the more restrictive \u201cany occupation\u201d definition may restrict claim payments to the customer, even if they are still incapable of performing their usual occupation.\u00a0<\/strong><\/p>\n

    5. Long-term benefit payments<\/strong><\/p>\n

    APRA provided a list of recommendations on how insurers could manage the risks associated with long-term claims but was not prescriptive. Instead, it encouraged insurers to explore various options to actively manage the risk. In addition to the shift from own occupation to any occupation, and the reduction in income replacement ratio discussed above, financial advisers should be mindful of:<\/p>\n