Balancing affordability, value, and choice to deliver a diverse portfolio of Income Protection products
Rob Powell, TAL Head of Product Development
As Australians face the challenges of the rising cost of living many households are scrutinising expenses and rethinking financial priorities.
Balancing competing budget considerations can be daunting and this is where financial advisers can provide expert support. Professional advice can be especially important in helping clients find the right short term financial solution while still achieving financial protection over the long term, especially in the event of serious illness or injury.
Understanding a client’s priorities, risk appetite, and preferences are key to helping them navigate financial trade-offs
In choosing the most suitable Income Protection product, a client might want to minimise the financial impact in the event they are unable to work. Or they may be focused on not losing the opportunity to enjoy their lifestyle or grow their wealth in other ways, such as investing more in super, or paying off any loans more quickly.
An adviser’s role is to support clients through this decision-making process with context, insight, and recommendations on which risk products will best meet individual needs and reflect that client’s personal priorities.
A client who understands the benefits, risks, and trade-offs around different risk product options can make informed and confident decisions as to which option will best suit their needs and financial goals in both the short and longer term.
As product providers, it is our job to ensure advisers have the right options to work with across a diverse range of client needs and circumstances. Whichever choice their client makes, the adviser should be confident it will deliver the expected outcomes.
TAL’s Income Protection products have been designed with the customer in mind and built with the goal of improved premium stability over the long term
TAL offers three Income Protection products, each designed to deliver benefits in different ways, so advisers have a range of price and cover options to draw on in considering their client’s needs. All of these Income Protection products have been designed with the customer in mind and built with the goal of improved premium stability over the long term.
Income Protection Extend (Flat 70¹) has been designed to deliver competitive and relevant benefits when they are most needed. It is a long-term cover option (‘to-age-65’), which offers a flat income replacement ratio of up to 70% for the duration of the claim for all claims which commence before the policy anniversary prior to the client’s 60th birthday. Claims commencing after this will have any ongoing benefit amount reduced by 1/3rd after 24 months on claim.
This product recognises that for some clients, the greater priority is on the certainty a flat income replacement ratio can provide, rather than the cost of the premiums being the primary consideration. Income Protection Extend provides an ‘Own occupation’ disability definition for the first two years of a claim.
Income Protection Enhance offers TAL’s most affordable long-term cover and is designed to be fair for those who claim, as well as those who don’t. In this way Enhance can maintain lower premiums compared to other options over the life of the policy.
This product design recognises that a significant majority of claims do not last beyond two years. An analysis from more than 2,500 past Income Protection claims undertaken by TAL as part of an evidence-led approach to the product design process showed us 92% of claims were finalised within two years. Only 8% of all claimants historically remained on claim beyond two years, however this group accounts for 80% of all claim costs2.
Enhance introduces additional eligibility criteria after the first two years on claim to continue accessing the full benefit amount. Building these additional criteria into the product to enable the benefit level to reflect the severity of the claim and ongoing need enabling a less expensive product at the time of policy commencement, with a higher likelihood of greater affordability over the life of the policy.
The third product in TAL’s Accelerated Protection suite is Income Protection Focus, which also provides a Flat 701 benefit and applies an ‘Own occupation’ disability definition for the entire one, two or five year benefit period.
Evolving products support the diverse needs of even more Australians
Together, product providers and advisers have an important role to play in ensuring that suitable and affordable cover remains accessible to all Australians over the long term, so they can feel confident that they are protected against unforeseen illness or injury which could otherwise impact their household income in a much greater way.
1. Income Protection Focus and Extend offers up to a 70% replacement ratio. For Focus a 1, 2 or 5 year Benefit Period applies and ‘to age 65’ Benefit Period for Extend. The benefit a life insured receives on claim may be reduced in certain circumstances. For example, if the insured is Partially Unable to Work we will pay a portion of the benefit amount, or if an offset or adjustment applies. If a claim starts after the Policy anniversary before the life insured’s 60th birthday, the amount used to calculate the benefit payable will be 2/3rd of the Benefit Amount after the Claim Period exceeds 24 months.
2. Analysis based on those Accelerated Protection IP claims whose Waiting Period finished before 1 July 2015 to ensure longer duration data was captured. Analysis was performed 17 August 2020 and includes reserves for future payments on open claims at time of data analysis.
This information has been prepared for use by licensed advisers in their professional capacity only and is not intended to be used by clients to make a decision. Any financial product advice is general in nature only and does not take into account any person’s objectives, financial situation or needs. Before acting on it, the appropriateness of the advice for any person should be considered, having regard to those factors. Persons deciding whether to acquire or continue to hold life insurance issued by TAL Life Limited should consider the TAL Accelerated Protection Product Disclosure Statement (PDS). The PDS and Target Market Determination (TMD) for this product are also available at www.tal.com.au.
Life insurance is issued by TAL Life Limited ABN 70 050 109 450 AFSL 237848 (TAL Life) which is part of the TAL Dai-ichi Life Australia Pty Limited ABN 97 150 070 483 group of companies (TAL).