Review your income protection before you cancel: you may not be able to reverse the decision

We’re Maciej Stanek and Imran Amjad, financial advisers at Véurr Financial Planning in Canberra. This page is general information about income protection held as an individual policy, in your own name or arranged through an adviser. If your only cover is the default cover in your super fund, Moneysmart’s guide to insurance through super is the better starting point.

What changed for income protection after October 2021?

APRA, the prudential regulator, set limits on new income protection policies. Insurers were expected to stop writing new agreed value policies from 31 March 2020. From 1 October 2021, new policies base the benefit on your earnings at the time of the claim, and cap the income replacement benefit at 90% of those earnings for the first six months of a claim and 70% after that (some rehabilitation and super-contribution benefits can be paid on top). APRA also expected insurers to control the risks of long benefit periods, for example with a stricter definition of disability.

APRA first set out these measures to life insurers in December 2019, after years of heavy losses on the product, and finalised them in September 2020.

APRA also planned to limit new policies to five-year contract terms, so that terms could be updated over time. It deferred that measure in May 2021 and suspended it in March 2022, saying it would reassess after at least two years.

Is own occupation income protection still available?

Yes, but often not for a whole claim. APRA did not ban own-occupation definitions or set a time limit on them. Many policies sold since October 2021 assess a claim against your own occupation for the first two years, then under an any-occupation definition. Others keep the own-occupation test but pay a lower benefit after two years, and some shorter benefit periods, such as five years, keep the own-occupation test for the whole claim.

In its final measures, APRA gave “applying a stricter disability definition, or having lower benefit levels when claims exceed a given period” as examples of controls for long benefit periods, and left the design to each insurer (APRA, September 2020). Whether a long claim keeps paying can turn on which test applies after the first two years.

Some insurers’ current policies still offer own-occupation definitions for longer than two years, depending on the policy and options chosen.

What is agreed value income protection?

It is a policy where the benefit is set by your earnings when you applied, not your earnings when you claim. APRA said these contracts are inconsistent with the principle that insurance should not pay more than the loss, and expected insurers to stop writing them from 31 March 2020. So an agreed value policy held today will generally have been issued before that date.

What an older policy may include

Policies that started before these changes were written on the terms each insurer offered at the time. Depending on the policy, that may include an agreed value benefit, an own-occupation test for the whole of a claim, or extra benefits that could take total payments above your earnings. In 2019, APRA noted that features and extra benefits on policies then on sale could take a benefit above 100% of earnings at claim (APRA, December 2019).

Only your policy schedule and the product disclosure statement (PDS) it was issued under show which of these you have; as Moneysmart puts it, each income protection policy has its own definition of disability.

Why an older policy can be worth keeping

• Its terms may not be for sale any more. New policies sit inside APRA’s limits. If an older policy has terms outside them, cancelling it gives those terms up for good.
• A new policy starts from today. An insurer assessing a new application asks about your age, job, income, health and lifestyle now, and uses the answers to decide whether to cover you, the premium and the terms (Moneysmart). Anything that has changed since you first applied, your health included, comes into that.
• The terms were set for the long run. In 2019, APRA described most policies on the market as renewable each year at a premium the insurer can change, with terms and conditions set for an extended period, typically until retirement age (APRA, December 2019).

Why a review can still make sense

• The premium. In June 2025, ASIC and APRA reported that the average annual premium for individual life insurance bought through advisers had increased significantly over the five years to December 2024, because of cover indexation, age-based increases and higher base premium rates. They also said riskier product features are harder to price, which makes larger increases more likely (ASIC and APRA, June 2025). Our guide to stepped and level premiums explains why both structures can rise.
• Affordability. Cover you stop paying for protects no one. The waiting period and the benefit period are among the features that affect the premium (Moneysmart), so depending on the policy, changing one of them may lower the premium without giving the policy up. Before changing any of them, ask the insurer in writing whether the rest of your original terms stay as they are.
• Your needs. A mortgage paid down, a partner’s income, retirement coming into view, or earnings well above or below what they were when you applied can all change how much cover makes sense. An agreed value benefit was fixed on your earnings at application, so it may no longer match what you earn now. Our insurance cover calculator gives a first view of the amounts, and our guide to income protection for high-income earners covers sizing cover and the tax treatment.

What can a review change to lower the cost?

A review looks at the parts of a policy that set the premium, and at what each change would give up. Depending on the policy, these are the places to look:

• Waiting period. A longer wait before payments start usually costs less, but you then need savings or leave to cover that time (our guide for high-income earners explains the trade-off).
• Benefit period. A shorter benefit period costs less than cover paid to age 65, but payments stop sooner if you cannot return to work.
• Stepped or level premiums. A stepped (now called “variable age-stepped”) premium is recalculated for your age at each renewal, while a level (“variable”) premium starts higher and its later changes are not based on your age (Moneysmart); our guide to stepped and level premiums sets out how each can rise.
• Cover inside super. Premiums for cover through super come out of your super balance rather than your take-home pay and may be lower because funds buy cover in bulk, but they reduce your retirement savings (Moneysmart), and cover outside super may allow a higher amount and more features (Moneysmart).
• Indexation. Indexation raises the amount insured each year in line with inflation, and the premium rises with it; declining it keeps the premium lower, but the cover then buys less over time.
• Occupation class. Your job is one of the things the insurer uses to set the premium (Moneysmart), so if your duties have changed, ask whether a different occupation class now applies.
• Monthly benefit amount. APRA has said that cover replacing too high a share of income can mean paying extra premium for cover you do not need, so check that the monthly amount still matches what you earn now; on an agreed value policy, check what it would pay before reducing it.
• Agreed value or indemnity. Moving an agreed value benefit to one based on your earnings at claim may lower the premium, but you could not get agreed value back on a new policy, because insurers were expected to stop writing it from 31 March 2020 (APRA).
• Loadings. A loading is a percentage added to the standard premium for a higher-risk job, a pre-existing condition or smoking (Moneysmart); if the reason no longer applies, ask the insurer whether it will review the loading.

Before you agree to any change, ask the insurer whether it changes your existing policy or needs a new application: a new policy is assessed on your age, health and job today.

Should you cancel an income protection policy taken out before 2021?

There is no answer that fits everyone. Cancelling cannot be undone, and the terms of an older policy may not be available on any policy sold today. Against that, premiums have risen and your needs may have changed since you applied. The useful step is to compare what a change would give up with what it would gain, with an adviser if you can, before you cancel, reduce or replace anything.

Questions to ask before you change anything

1. Does my policy pay an agreed value, or a benefit based on my earnings when I claim?
2. Is my benefit amount still right for my income? An agreed value or indexed benefit can outgrow current earnings. Indemnity claims depend on pre-claim earnings, so a fall in income can mean a payout below the amount insured. Reducing excess cover may save premium, but agreed value cover works differently: check what your policy would pay before reducing it.
3. Which definition of disability applies, and does it change during a long claim?
4. What are my waiting period and benefit period, and what would changing each one do to the premium?
5. How much has my premium risen over the last few years, and why?
6. If I reduce my cover, does everything else in the policy stay on its original terms?
7. If I apply for new cover, will my existing policy stay in force until the new one has been accepted?

Income protection is one part of a wider set of cover; our guide to personal insurance advice in Canberra sets out how it fits with life, TPD and trauma cover.