Income protection changes since 2021: what APRA's reforms mean for you

Income protection policies sold in Australia since 1 October 2021 work differently from older ones. New individual policies generally replace up to 70% of your income (up to 90% is allowed in the first six months of a claim), calculate that income from the 12 months before you claim rather than a figure agreed at application, and apply a stricter "any occupation" style test once you have been on claim for two years under long benefit periods. Agreed value policies stopped being sold from 1 April 2020. If you bought your policy before those dates, its old terms usually still apply, which is a good reason to be careful before replacing it.

This guide is part of the costs and rules overview.

Why APRA stepped in

Individual disability income insurance, the industry term for retail income protection, lost life insurers large sums through the 2010s. APRA, which supervises life insurers' financial soundness, found that product design, such as generous agreed benefits, own-occupation cover to age 65 and benefits that could exceed what people earned before they stopped work, encouraged long claims and made premiums unsustainable. In December 2019 APRA required insurers to act, and set out specific design expectations in 2020 and 2021. Insurers redesigned their products to meet them, and the measures have applied to new policies since the dates above.

What changed

Feature	Older policies (typically)	New policies (from 1 Oct 2021)
How the benefit is set	Agreed value at application, or indemnity based on your best year in a look-back period	Indemnity, based on income in the 12 months before the claim, with limited exceptions
Maximum ongoing benefit	Often 75% of income including super contributions	Generally up to 70% of income, excluding super
First six months	Some policies paid extra benefits that could exceed income	Up to 90% of income in total in the first six months
Work test after two years	Own occupation could apply to age 65	For benefit periods over two years, a stricter test based on any suitable occupation applies after two years on claim
Contract term	Guaranteed renewable to age 65 or 70 on the same terms	APRA also proposed a maximum contract term of five years, with renewal on the terms then current; it was deferred to October 2022 and then suspended in March 2022, so new policies are generally still guaranteed renewable (check your PDS and APRA for any later change)

Agreed value is gone

An agreed value policy paid the benefit agreed at application, provided you had evidence of income then, even if your income had fallen by the time you claimed. That made it popular with self-employed people with variable income. It is no longer sold to new customers. Existing agreed value policies remain in force while premiums are paid, which makes them valuable to keep for many holders.

Benefits now track what you actually earned

With an indemnity benefit based on the last 12 months, a fall in income before you claim, for example from going part-time, parental leave or a quiet year in business, lowers your benefit. Insurers have exceptions, such as for parental leave or unemployment shortly before the claim. Read the definition of pre-disability income in the PDS, especially if you are self-employed.

Stricter test after two years

On a benefit period longer than two years, the first two years are typically assessed against your own occupation. After that, many new policies ask whether you can work in any occupation suited to your education, training and experience. A surgeon who cannot operate but can teach might stop receiving benefits under the later test.

Worked example: old agreed value vs new indemnity

Illustrative: Jordan is a self-employed electrician.

2018 policy (agreed value): agreed at application on income of $120,000, monthly benefit 75% × $120,000 ÷ 12 = $7,500.
2026 policy (new style): insured at 70% of income.

Jordan's taxable business income over the 12 months before a claim in late 2026 was $84,000, because of a slow year.

Old policy pays $7,500 a month (agreed value, subject to its terms).
New policy pays 70% × $84,000 ÷ 12 = $4,900 a month.

The difference is $2,600 a month, or $31,200 a year. That is why replacing an older policy with a new one to save premium needs a careful comparison.

What has not changed

The waiting period and benefit period choices, see choosing waiting and benefit periods.
The tax deduction for premiums paid outside super, see the tax deduction guide.
Offsets for workers' compensation, other income protection and some leave, see offsets.
Group income protection in super is not subject to the same individual-policy measures, though funds have their own terms.

Should you replace an older policy?

Usually not without very careful comparison. Ask:

Is my existing policy agreed value? If so, keep it unless the premium has become unaffordable.
Does it offer own occupation to age 65? That is no longer available on new policies.
Could I pass underwriting for a new policy today, with my current health?
What is the real saving after tax, using the premium tax deduction calculator?
Can I reduce the cost of the existing policy instead, for example by lengthening the waiting period? This can usually be done without new underwriting, whereas shortening the waiting period or increasing the benefit usually needs it.

Frequently asked questions

Did my old policy change on 1 October 2021?

Generally no. The measures applied to new policies. Some insurers did change optional terms or premium rates on existing policy series, which they must notify you about.

Can I still insure super contributions?

Some insurers offer super contribution cover as an option, separate from the 70% benefit. Check the PDS.

Does 70% apply to my gross or net income?

Gross income, as defined in the policy. For employees that is usually salary and some regular allowances; for the self-employed it is usually income generated by personal exertion after business expenses.

Sources

APRA — individual disability income insurance measures and life insurance statistics
Moneysmart — how income protection works
Federal Register of Legislation — Life Insurance Act 1995