When Should You Review Your Income Protection Policy?

Income protection insurance is one of the most valuable financial tools an Australian can hold. It replaces a portion of your income if you are unable to work due to illness or injury, giving you and your family a financial buffer during what can be an incredibly difficult time. But like any insurance policy, income protection is not a set-and-forget arrangement. Life changes, and your policy needs to keep pace.

At MiQ Private, we have seen firsthand how an income protection policy that was perfectly suited to someone’s circumstances five years ago can fall significantly short of what they need today. A promotion, a new mortgage, a growing family, or a change in employment can all affect whether your existing cover is still doing its job.

This article walks through the key life events and circumstances that may indicate it is time to review your income protection policy, and what to look for when you do.

What Income Protection Insurance Actually Covers

Before diving into when to review, it is worth making sure you have a clear picture of what income protection is designed to do.

Income protection insurance typically pays a monthly benefit of up to 70% of your pre-disability income if you are unable to work due to sickness or injury. The benefit period, which is how long payments continue, can range from two years to age 65 depending on the policy. The waiting period, which is the time between becoming unable to work and when payments begin, typically ranges from 14 days to two years.

These three elements – the benefit amount, the benefit period, and the waiting period – are the core levers of an income protection policy. When your circumstances change, any one of these may need to be adjusted.

After a Significant Income Increase

If your income has grown substantially since you took out your policy, your cover may no longer reflect your actual earnings. Income protection benefits are generally capped at a percentage of your pre-disability income at the time of claim, and if your policy was set based on a lower salary, you could find yourself receiving a benefit that does not cover your current living costs.

A pay rise, a promotion, a move into self-employment with higher drawings, or the growth of a business can all trigger this situation. Reviewing your benefit amount after any significant income change is a sensible step, not just to make sure you are adequately covered, but also to make sure you are not paying premiums on cover that is miscalibrated in either direction.

After Taking on New Financial Commitments

A new mortgage, a car loan, or other significant financial commitments change the minimum income you need to sustain your household. If you were to become unable to work, your obligations do not pause. The lender still expects repayments, and the household still has bills to pay.

If your policy’s benefit amount is not sufficient to cover these new commitments alongside living costs, there is a gap in your protection. Reviewing your cover whenever you take on a major new financial obligation is a practical step that many people overlook in the excitement of a significant purchase or life change.

When You Start or Grow a Family

The arrival of children changes everything, including your income protection needs. Where once a two-income household might have been able to absorb a period of disability with some financial strain, a family with young children and potentially reduced income from one partner faces a very different risk profile.

Beyond the immediate costs of raising children, there are longer-term considerations around education, housing, and the financial goals your family is working toward. Income protection cover that may have been adequate for a single person or couple without dependentsdependants can quickly become insufficient when there are children relying on the family income.

The benefit period is worth paying particular attention to when family circumstances change. A longer benefit period, potentially to age 65, provides greater certainty that your family is supported if you face an extended period of disability.

After a Change in Occupation or Employment Type

The nature of your work matters significantly in income protection. Many policies are linked to your occupational classification, which affects both the premium you pay and the conditions under which a claim can be made.

If you have changed occupations since taking out your policy, your current role may carry a different risk profile to the one your policy was designed for. Moving into a physically demanding role, for example, or shifting from employment to self-employment, can affect your cover in ways that are not always immediately obvious.

Self-employed Australians in particular need to pay close attention to their income protection arrangements. The definition of income for self-employed people can differ between policies, and the documentation required to support a claim can also vary. Making sure your policy reflects your current employment status is important.

When Your Policy Structure May No Longer Suit You

Income protection policies come in different structures, and the one that suited you at an earlier stage of life may not be the most appropriate choice now.

Agreed value policies, which pay a fixed benefit agreed at the time of policy inception, have historically offered simplicity and certainty at claim time. However, these policies were phased out for new policies from April 2020 under APRA reforms. If you hold a legacy agreed value policy, it may be worth reviewing whether it still aligns with your current situation, particularly if your income has changed significantly.

Indemnity value policies, which pay a benefit based on your income at the time of claim, require you to demonstrate your income when you make a claim. Understanding which type of policy you hold and how it calculates your benefit is a foundational step in any policy review.

The waiting period is another structural element worth reassessing. If your financial position has strengthened and you have a more robust emergency fund, you may be comfortable extending your waiting period to reduce premiums. Conversely, if you have less of a financial buffer than when you took out the policy, a shorter waiting period may be appropriate.

After a Health Event or Change in Risk Profile

If you have experienced a health event, been diagnosed with a new condition, or your personal risk profile has changed for any reason, it is important to review not just your income protection policy but your insurance arrangements overall.

In some cases, a health change may affect your ability to claim on an existing policy or to obtain additional cover. Understanding your policy’s terms and how they interact with any pre-existing conditions or exclusions is important, particularly if circumstances have changed since the policy was first issued.

If you are in good health, a policy review can also be an opportunity to explore whether you are getting good value relative to what is available in the market.

How Often Should You Review?

In our view at MiQ Private, an income protection policy deserves a meaningful review at least every two to three years, and any time a significant life event occurs. The list of triggers includes, but is not limited to, income changes, new financial commitments, changes in family structure, changes in employment, and significant health events.

An annual insurance review as part of your broader financial planning conversation is a sensible habit. It takes the guesswork out of knowing when to act, because the review itself surfaces the relevant questions.

How MiQ Private Can Help

Our team at MiQ Private takes a holistic view of income protection as part of each client’s broader financial plan. We do not treat insurance as a separate conversation, because it is not. It sits alongside your superannuation, investments, debt position, and family situation, and the right level of cover cannot be assessed without understanding all of those elements together.

We can review your existing policy, benchmark it against what is available in the current market, and provide clear advice on whether it continues to serve your needs. If changes are warranted, we will walk you through the options and the trade-offs so you can make an informed decision.

We also bring expertise in the tax treatment of income protection premiums, which may be deductible depending on how the policy is structured and how premiums are paid.

Your Cover Should Grow With You

Income protection is most valuable when it is current and calibrated to your actual circumstances. A policy that no longer reflects your income, your obligations, or your life stage is a policy that may let you down precisely when you need it most.

If it has been a while since your last review, or if something in your life has changed recently, now is a good time to start the conversation. Reach out to the MiQ Private team, and let’s make sure your income protection is working as hard as it should be.