Important Changes to Income Protection

1. Insurers will no longer be able to assess claims under an ‘own occupation’ definition. Instead, they will be assessed under ‘own occupation’ for the first two years, then assessed under the ‘any occupation’ definition based on their experience, education and training. This is a huge shift by the insurers, as currently (and up until October) the insured has always been continually assessed under 'own occupation' until the expiry of the policy.
2. Insurers must stop basing benefits on a person’s income at the time of application, and instead must use their income at the time of claim. For those with stable incomes, benefits will be based on income earned in the previous 12 months. For people with variable incomes, their past earnings will be averaged over a period of time and reflective of future earnings lost as a result of the disability.
   
   This could have a big impact on anyone whose income varies from year to year, such as business owners. A business owner who, for example, has more modest income for several years while they are building their business, and then a higher-income year just prior to an injury, could see their payout calculated at significantly less than they expect, as a result of averaging.