APRA’s income protection overhaul: what changed (and why you should care) 

life insurance
Written By Jam Villasanta

You might have seen “APRA income protection changes” floating around and thought, do I really need to care about this? Short answer: yes, if you’ve got cover or you’re thinking about it. 

APRA or Australian Prudential Regulation Authority (that’s the regulator who keeps insurers in line) recently updated the rules for income protection. Not to make life harder, but to make sure the system actually works long-term. Some of the changes are pretty practical, like shifting how payouts are calculated and tweaking what counts as “your job” if you need to claim. 

In this post, we’ll break down what APRA did, why it matters, and how it could affect you if you’re in your 20s or 30s and planning big life stuff like buying a place, starting a family, or going out on your own in business. 

What’s going on and why now 

Back in December 2019, APRA told life insurers: “Hey, your income protection products are bleeding money.” Over five years, the industry lost about A$3.4 billion on individual disability income insurance (IDII) contracts (ANZIIF). 

If nothing changed, the risk was simple: premiums would keep climbing, insurers would walk away from the market, and everyday Australians could be left with no affordable cover at all. 

So APRA stepped in. The idea was to rein in overly generous features, make cover sustainable, and ensure people could still get something when they need it (BDO). 

Phase 1: April 2020 – agreed value disappears 

Before 2020, you could lock in your benefit amount when you first bought a policy. That was called agreed value. It meant even if your income dropped later, your benefit stayed at the higher level. 

The problem? Some claimants ended up getting more on claim than they earned at work. From an insurer’s view, that created “moral hazard” basically, no incentive to get back to work. Long-term claims dragged on, and insurers lost billions. 

From April 2020, agreed value was scrapped. All new policies became indemnity only, meaning payouts are tied to your actual income at claim time, not what you earned in a golden year years ago. 

Phase 2: October 2021 – the big changes 

This phase was the real shake-up. Several major reforms kicked in for new policies issued after 1 October 2021: 

  • Income lookback cut to 12 months 
    Old indemnity policies used your best 12 months from the last three years. New ones only look at your last 12 months of income. If you had a rough year or took time off, your payout could shrink. 

  • Own occupation limited to two years 
    Pre-2021, if you couldn’t return to your specific job (say, a paramedic), you could stay on claim until your benefit period ended. New rules only allow this for two years. After that, insurers check if you can work in any occupation suited to your training and experience (RSM Global). 

  • Benefit reduced from 75% to 70% 
    The maximum benefit dropped from 75% of your income package to 70% of your pre-tax income plus super (RSM Global). 

  • Replacement ratios reshaped 
    Some insurers pay higher benefits (up to 90%) for the first six months, then reduce it to 60–70% after that. This discourages people from staying on claim long term (InsuranceWatch). 

  • Contract periods and re-underwriting 
    APRA also wanted policies re-underwritten every five years based on occupation. In reality, this was delayed and never fully implemented (BDO). 

Phase 3: October 2022 – the change that never happened 

The 2022 reform was meant to re-underwrite every five years. That meant if you changed from a desk job to a riskier role, say, financial adviser to police officer, your insurer could change or cancel your cover. 

Critics pointed out how unfair this was. Parents on parental leave, people between jobs, or anyone with new health issues could suddenly become uninsurable. After pushback from advisers and industry groups, the plan was shelved indefinitely. 

Old vs new policies: which side are you on 

  • Old policies (pre-2020/21): Grandfathered. As long as you keep paying premiums, your features remain. That includes agreed value, broader income lookback, and stronger “own occupation” definitions. 

  • New policies: Cheaper in some cases, but less generous. Tighter definitions, smaller payouts, and less flexibility if your income or job changes. 

Once you cancel an old policy, you can’t get those terms back. Switching often means giving up valuable features. So for many people, keeping an older policy can still be the smart play even if premiums are higher. 

Real life stuff: when change bites you 

Imagine this: 

  • You’re self-employed, working on a side hustle. You take six months off to travel. Under old agreed value rules, your insurer might still use your higher income year to calculate your benefit. Under the new rules, only your last 12 months count so your payout could collapse. 

  • Or you pick up a parenting break. Old policies may still reflect your pre-leave income. New ones usually won’t after 12 months. 

These are the real-world risks if your income fluctuates. 

What the stats say 

Source: CommInsure claim data 

These aren’t just worst-case illnesses—life happens. You might break a leg, burn out, or face a health curveball. That’s why income protection is a safety net. 

Claims data tells the story 

  • Zurich’s 2023 claims analysis reported musculoskeletal conditions (34%), cancer (21%), and mental health (18%) as the top causes of life insurance claims. Average claim payments ranged from $118,000 for mental health to $187,000 for cancer. 

  • TAL has reported a rise in mental health claims, with these conditions making up 29% of income protection and TPD claims in 2024, up from 23% the year before. 

These aren’t rare conditions. They’re everyday health events that can disrupt anyone’s ability to earn. 

What matters most if you’re in your 20s or 30s 

  1. Is your income stable or fluctuating? 
    Freelancers, contractors, and small business owners need to be especially careful. New rules can punish you if income dips. 

  2. Are you planning breaks? 
    Parental leave, travel, or study time? Old policies tend to be more forgiving. 

  3. Will your job or health change? 
    New rules could reassess your risk if you switch careers. 

  4. How likely are you to switch policies? 
    Moving from an old to a new policy almost always means losing features (InsuranceWatch). 

The bottom line 

APRA’s income protection changes reshaped the way policies work in Australia. For new policies, the safety net is tighter. For older ones, the value may be worth holding onto, even if premiums climb. The key is understanding how these changes line up with your life stage.  

Don’t cancel an old policy without getting advice. Once it’s gone, it’s gone. 

Resources 

Jam Villasanta
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