There are significant changes coming to income protection contracts with insurers to cease offering 'AGREED VALUE' contracts as of 31st March 2020.
An agreed value contract means that the sum insured is based upon your current earnings and should you go on claim, the insurer agrees to pay this amount (less any applicable offsets) regardless of your earnings since. This means that if your income is lower at time of claim compared to time of application, you may be entitled to the higher amount. This type of cover provides certainty in that you know what you are insured for in times of need.
This is as opposed to an indemnity contract which is based on earnings leading up to claim. You can have a certain sum insured but if your income has fallen since taking out the policy (either temporarily or permanently - by taking leave with pay, a change in occupation, a change to self-employed, pay cut, redundancy) then you will be entitled to the adjusted (LOWER) amount. From April 2020, only indemnity contacts will be offered.
We are already being notified of insurers withdrawing contracts for AGREED VALUE applications as early as next week.
Who should act on this?
Those thinking of taking out income protection
Those with an indemnity style contract in place
Those with income protection through a super fund, and
Those who would like to review what they already hold
It is also important to note that for clients that have agreed value contracts in place as at 1st April 2020, you will be able to maintain these - if you have one, keep it!
Information contained on this web page is of a general nature only and your personal financial position, objectives or needs have not been considered. Please ensure you have the necessary financial, tax and legal advice before acting on this information. Do not rely upon it when making financial decisions.