Agreed value income protection (RIP)

It is no longer possible to take out agreed value income protection – an insurer now typically bases a payout on what you earned in the 12 months prior to your claim.

Key takeaways

  • Agreed value income protection is no longer available in Australia.
  • APRA intervened to address some pretty hectic risks it was leading to.
  • There are some other options that can help.

Income protection insurance has long been a valuable safety net for Australians, providing financial support in the event of illness or injury. One type of income protection, agreed value, was particularly popular for its guaranteed benefit amount. However, due to industry changes and regulatory interventions, agreed value income protection is no longer available for new policies.

Understanding Agreed Value

With agreed value income protection, policyholders locked in a specific benefit amount when they first purchased the policy. This meant that regardless of any income fluctuations after the initial purchase, the benefit remained fixed. This was particularly attractive to those with variable incomes, such as self-employed individuals or those with commission-based roles.

Regulatory Intervention

In 2020, the Australian Prudential Regulation Authority (APRA) intervened in the life insurance market due to concerns about the sustainability of individual disability income insurance (IDII) policies. APRA identified several issues with agreed value policies, including:

  • Moral Hazard: The potential for policyholders to have less motivation to return to work due to the guaranteed benefit.
  • Unsustainable Costs: The risk of insurers incurring significant losses if policyholders' incomes declined after purchasing the policy.
  • Deviation from the Principle of Indemnity: Agreed value policies could violate the principle of indemnity, where benefits should not exceed economic loss.

APRA's Mandated Changes

To address these concerns, APRA required insurance companies to:

  • Cease Offering Agreed Value Policies: New policies must be issued on an indemnity basis.
  • Base Cover on Income at Time of Claim: Benefit amounts should be linked to income within the 12 months prior to making a claim.
  • Limit Income Replacement Ratios: Benefits should be capped at a certain percentage of earnings.
  • Restrict Guaranteed Renewability: Policies should have a shorter guaranteed renewal period.

Impact on Policyholders

The transition from agreed value to indemnity value has significant implications for policyholders. Those with existing agreed value policies have been able to maintain their coverage, but new buyers are limited to indemnity value options.

Key Considerations

When comparing income protection policies, it's essential to evaluate the following factors:

  • Benefit Amount: Determine the level of coverage you need to adequately support your lifestyle and financial obligations.
  • Waiting Period: Consider the length of time you're willing to wait before benefits begin.
  • Benefit Period: Evaluate how long you want the benefits to continue.
  • Exclusions and Limitations: Understand any conditions that might affect your eligibility for benefits.
  • Premium Costs: Compare premiums from different insurers to find the best value for your needs.

Comparing Income Protection Policies

To find the right income protection policy for you, use our comparison tool to compare quotes from leading insurers. You can also consult with a financial advisor for personalized guidance.

Compare direct brands for income protection

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Product Finder Score Maximum monthly benefit Maximum % of income covered Maximum benefit period Minimum entry age Sum insured
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$30,000
Up to 70%
Up to
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19
$1,305 million
Get up to 70% of your income covered with flexible short and long term benefit periods.
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$10,000
Up to 75%
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5 years
18
$222 million
Save up to 10% on premiums every year for the life of the policy on AAMI Income Protection. Offer ends 31 July 2025. T&Cs apply.
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Finder score
$10,000
Up to 75%
Up to
5 years
18
$222 million
Save up to 10% on premiums every year for the life of the policy on Suncorp Income Protection. Offer ends 31 July 2025. T&Cs apply.
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Zurich Income Protection Insurance logo
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Finder score
$12,000
Up to 70%
Up to
5 years
19
$5 million
Get your first month of cover free when you buy Zurich EziCover Income Protection.
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Medibank Income Protection Insurance logo
Finder score
Finder score
$12,500
Up to 70%
Up to
5 years
18
Data not available
Save 10% on your first year of Medibank Income Protection when you apply by 31 July 2025. T&Cs apply.
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ahm Income Protection Insurance logo
Finder score
Finder score
$10,000
Up to 70%
Up to
5 years
18
Data not available
Get 10% off your first year of ahm Income Protection when you apply by 31 July 2025. T&Cs apply.
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Real Income Protection logo
Finder score
Not yet rated
Finder score
Not yet rated
$15,000
Up to 70%
Up to
5 Years
18
Data not available
Cover up to 70% of your monthly income if you can’t work due to illness or injury, up to a maximum of $15,000 a month.
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A seasoned journalist with over 10 years of experience in news, politics and finance reporting, Tim has previously held roles at the ABC, SBS and Fairfax Media. Tim’s expert insights have been quoted in The Australian, The Daily Telegraph, The Courier Mail and more. He regularly appears on TV and radio, and has been interviewed on 7 News, Sunrise, SBS News, ABC Local, 3AW and 5AA. Tim is passionate about simplifying complex insurance topics for Australian consumers. He holds a Bachelor of Arts (Politics) from Macquarie University and a Tier 1 General Insurance (General Advice) certification, which meets the requirements of ASIC Regulatory Guide 146 (RG146). If you’re interested in a media interview with Tim, please reach out to our PR team at aupr@finder.com. See full bio

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