Last Chance for Quality Income Protection as a Doctor
Following the big change by the government from 1st April 2020 to no longer allow insurers to offer new Income Protection policies that pay a guaranteed amount at claim time, there will be even bigger changes later this year.
In response to concerns about the sustainability of the Income Protection insurance industry, Australia’s insurance regulator, APRA, is set to mandate further regulatory changes from October 2021, that will have a major impact on Doctors seeking income protection cover.
The impending changes to be introduced on 1 October 2021 (or earlier if reputable insurers choose to do so), should be cause for concern if you do not yet have quality income protection cover you own and control, covers you for own specialty occupation, is on a ‘guaranteed renewable’ basis, has been fully assessed upfront and would pay you until at least age 65 if you would never work again due to illness or injury.
Most significantly, a change to the occupation clause is set to fundamentally alter how individuals can claim for cover, with professionals in higher earning jobs – like Doctors – set to feel the biggest impacts.
So what will be the biggest changes?
5-Year Contract Period Only
Policies will no longer have fixed terms of more than five years and will also be reassessed every five years to ensure they are relevant to the holders’ current occupation and income.
If your income or occupation has changed within the five year period, it is likely to affect your level of cover. For example, if as a result of a reduction in work hours due to progressive injury, illness, or sabbatical leave (e.g. fellowship, further study, maternity leave), your income also reduces, your cover may also be reduced.
In addition, the insurer will have the discretion to downgrade the definitions of your policy every 5 years.
The above changes are in stark contrast to the ‘guaranteed renewable’ Income Protection contracts currently available, whereby once your policy is in place, the insurer can only upgrade the definitions of your policy and the cover is guaranteed renewable on every policy anniversary for the life of the policy irrespective of any changes in your circumstances.
So however unhealthy you may become, however many hazardous activities you may take up in the future and wherever in the world you might decide to visit, you will still be covered.
Own Occupation for Only 2-3 Years
Currently the ‘own occupation’ definition exists to protect Doctors (and other professionals) from being pushed into ‘any occupation’, if an injury or illness deems them unfit to perform their profession at the time they took out cover.
With APRA’s regulatory changes, claims extending longer than 2-3 years will be subject to an ‘any occupation’ clause. Under this clause, the ‘own occupation’ definition will only be applicable for the first 2-3 years of a claim and policyholders will no longer be able to claim if they can perform ‘any occupation’.
Previously, policyholders were measured against their ‘own’ profession and may have been able to claim indefinitely if they could only not perform it. The impending changes will see that after two years, claims will be assessed on the ability to work in ‘any occupation’ based on training, education, and experience, and one that the disability wouldn’t prevent anyone from performing.
Another big change expected is the conditions you must satisfy to be considered totally or partially disabled, which will be much more onerous.
So, what should you do?
If you don’t currently have a quality Income Protection cover that you own and control, covers you for own specialty occupation, is on a ‘guaranteed renewable’ basis, has been fully assessed upfront and would pay you until at least age 65 if you would never work again due to illness or injury – best act quickly to seek advice to apply for this.
The process to apply and the assessment by a reputable insurer can take up to several months and some insurers may action this change sooner than October, so you shouldn’t wait until the last minute.
Reference: https://www.apra.gov.au/news-and-publications/apra-resumes-work-to-enhance-sustainability-of-individual-disability-income
Short term market movements can’t be managed. Attempting to can lead to reactive, emotional decisions that distract you from your long term goals.
Does it really matter what the markets do over the short term, if you have invested in good long term investments for the long term?
Turn off the white noise
The media industry is designed to create attention-grabbing headlines, which helps them sell advertising and subscriptions.
Everyone has an opinion too, like friends, family, colleagues or your Uber driver.
Instead of paying attention to a lot of this white noise, best go do something you enioy and get away from all of this!
Maintain some cash for your near-term spending needs and for emergencies.
It is much easier to stay disciplined and not get emotional if you have no need to sell good long term investments if markets fall.
You may even use some of this cash to take advantage of market falls to buy undervalued investments.
Be greedy when others are fearful
Many Doctors are in a very fortunate position where they have relatively high incomes with are not impacted significantly by market or economic downturns. In addition, for many Doctors, more work is available if they wished to work longer hours and make more money.
This is not the case for many other Australians, especially in an economic downturn.
Thus, Doctors could invest more if there are market falls to take advantage of buying undervalued investments and benefit when markets eventually recover.
Get help
Discipline is important, but most of us can’t do it alone.
That’s why we’re here. To build a tailored investment plan made for you. And when times are challenging, we’re here to help you disciplined and ontrack. We also can help you see through the white noise and media hype.
For most of us, the biggest obstacle to reaching our long term financial and lifestyle goals in not the market itself – but our own behaviour. We aim to address this, keeping you disciplined and on track.
Your behaviour as an investor matters a lot – stay disciplined amongst market fluctuations and all the noise out there.
A smart investment strategy that’s right for you + patience = great outcomes
Pictures by Carl Richards