5 Signs an Income Protection Policy Is Out of Date — and Why Cancelling Is Rarely the Answer

Written by Christopher Hall, AdvDipFP | Authorised Representative, AFSL 526688 | June 2026

An income protection policy is out of date when one of five things has drifted: the benefit no longer matches current income, the policy is an older "agreed value" contract that has been heavily repriced, the waiting or benefit period no longer fits the household's finances, the premium is never claimed as a tax deduction where one may be available, or the only cover is the default income protection inside superannuation. In the experience of Christopher Hall, AdvDipFP, Authorised Representative, AFSL 526688, who has completed 500+ life insurance policy reviews across Australian families, most out-of-date policies were arranged once and never revisited — and the policyholder is usually unaware of the gap until a review surfaces it.

This article sets out those five signs — plus a sixth, cost-driven reason that often outweighs them all: a long-held policy quietly paying a "loyalty tax". It explains why "out of date" does not automatically mean "cancel and replace". It is the review-focused companion to Arrow Equities' broader guide on how income protection insurance works in Australia, and it deliberately stops short of telling any policyholder what to do — the right response to each sign depends on individual circumstances and is a question for a qualified adviser.

Does an out-of-date income protection policy need to be cancelled?

Usually not — and acting on the instinct to cancel can be the costly mistake. With income protection, the value of an in-force policy lies partly in the health record the policyholder had when it was issued.

Christopher Hall puts the point directly:

"The underwriting landscape has inverted over the past decade. Where once 10 to 20 per cent of applications carried exclusions or loadings, today only 10 to 20 per cent proceed without them — and once a pending investigation, or more than three exclusions, is on file, insurers frequently decline income protection cover entirely." — Christopher Hall, Arrow Equities

The cause is not a deterioration in Australians' health — it is that the healthcare system now identifies early markers in routine screening that would previously have gone undetected. This is the insurable window, and it means a policy issued years ago, on clean terms, can be effectively irreplaceable today even when its pricing or structure looks dated.

Most retail income protection policies are also guaranteed renewable: provided premiums are paid and the policy was taken out with full and accurate disclosure, the insurer cannot cancel the cover or single an individual policyholder out for a health-related increase. Premiums can still rise through across-the-book repricing or stepped-premium ageing — what is guaranteed is the continuation of cover, not the price. Cancelling surrenders that continuation. For that reason, the five signs below are reasons to review a policy, not instructions to end one. Policyholders who suspect their cover is out of date may wish to speak with a qualified adviser before changing or cancelling anything.

Sign 1: Is the benefit still matched to current income?

Income protection is designed to replace a portion of earnings — typically around 70 to 75 per cent of pre-disability income — if illness or injury prevents work. A policy is out of date when the insured benefit and the policyholder's actual income have drifted apart.

Drift runs in both directions. Many policies carry an automatic CPI indexation feature that lifts the benefit (and the premium) each year. Over a decade, that can push an insured benefit above the proportion of current income an insurer will actually pay at claim time — particularly on an indemnity policy, where the benefit is assessed against income at the date of claim rather than the date of application. The result is a premium paid for cover that may not be payable in full. Drift can also run the other way: a policyholder whose income has grown substantially may be carrying a benefit that no longer reflects what their household now depends on.

There is a related pattern Christopher Hall sees often in reviews: duplicate cover. A policyholder can hold income protection inside their superannuation fund and a second personal policy outside it, paying for the same risk twice while still leaving genuine gaps elsewhere — over-paying and under-protected at the same time. None of this is visible from the policy schedule alone; it surfaces when current income, the insured benefit, and every policy in force are looked at together.

Sign 2: Is it an older "agreed value" policy?

The distinction between agreed value and indemnity income protection determines how a benefit is calculated at claim time. An agreed value policy fixes the insured amount on the income evidenced when the policy was taken out; an indemnity policy assesses the benefit against income at the time of claim.

This matters for dating a policy because the market changed. APRA intervened after individual disability income insurance recorded collective losses of around $2.5 billion over five years (APRA, 2019), and under its sustainability measures life companies ceased offering agreed value income protection on new policies from 31 March 2020 (APRA, 2020). Agreed value cover can no longer be bought — which makes an older agreed value contract genuinely distinctive rather than simply old, especially for the self-employed or anyone whose income varies year to year.

It also cuts the other way on cost. In Christopher Hall's experience, income protection policies written before the APRA reforms — agreed value cover in particular — have been among the most aggressively repriced in the market, with some unreviewed policies seeing premium increases of more than 100 per cent over two to three years. A pre-2020 policy can therefore show both a valuable structure and a steep premium history at once. That combination is exactly why this is a sign to examine rather than act on reflexively: cancelling a pre-2020 agreed value policy gives up a feature that cannot be repurchased, while keeping it without review can mean absorbing increases that a restructure might address. Which consideration carries more weight depends entirely on the policyholder's circumstances, and is a matter to work through with a qualified adviser before making any change.

Sign 3: Does the waiting or benefit period still fit the household's finances?

Two structural settings shape every income protection policy: the waiting period — how long after becoming unable to work before benefits begin — and the benefit period — how long benefits are paid once a claim starts. Common waiting periods run from 14 days to 180 days; common benefit periods are two years, five years, or to age 65.

A policy is out of date when those settings no longer match the household's financial position. A long waiting period chosen when a couple held a large cash buffer may no longer suit a household whose savings have been redirected into a mortgage; a short waiting period attached to a high premium may be more cover than is needed by someone who has since built substantial sick-leave entitlements or liquid reserves. The key point is that changing either setting is a trade-off, not an upgrade. Shortening a waiting period brings benefits forward but raises the premium; shortening a benefit period lowers the premium but reduces how long a claim would be paid. Neither is "better" in the abstract — each shifts cost against protection in a different direction, which is why a benefit or waiting period change is assessed against a policyholder's specific finances with a qualified adviser rather than treated as a routine improvement.

Sign 4: Is the premium being claimed as a tax deduction?

One of the most common signs of a policy that has been set and forgotten is a premium that has never been claimed where a deduction may be available.

Income protection premiums paid from a policyholder's own pocket — for cover held personally, outside superannuation — may, depending on individual circumstances, be claimed as a personal tax deduction, because they are paid to protect assessable income (ATO, 2026). The deduction applies only to the part of a premium that protects income; where a policy also funds a lump sum or a benefit of a capital nature, that portion is not deductible (ATO, 2026). Premiums for income protection held inside superannuation — where the fund deducts them from super contributions — generally cannot be claimed personally, because the policyholder has not paid them from their own after-tax income (ATO, 2026). Whether any of this applies to a particular policy depends on individual circumstances — a qualified adviser or accountant should be consulted to confirm eligibility.

In Christopher Hall's experience, this is the feature most frequently left unclaimed: the majority of policyholders presenting for review are unaware that personally held income protection premiums may be deductible, typically because the policy was arranged once, often through a non-advised channel, and never revisited. A premium that has been paid entirely from after-tax income for years, when part of it could have reduced assessable income, is a strong indicator that the policy has not been looked at recently. The mechanics, and what can and cannot be claimed, are set out in full in Arrow Equities' guide to whether income protection is tax deductible in Australia.

Sign 5: Is the only cover the default income protection inside super?

Many Australians hold whatever income protection arrived automatically with their superannuation account, and assume it is enough. As a stand-alone position, that is often a sign the cover has not been reviewed.

Default cover in super is frequently limited in ways a personal policy is not — commonly a short benefit period, a longer waiting period, and unit-based cover whose insured amount can quietly reduce with age. The base of that cover also shrank by legislation: following the Protecting Your Super (2019) and Putting Members' Interests First (2020) reforms, super funds stopped providing automatic default insurance to new members under 25 and to accounts that have never reached a $6,000 balance, removing automatic cover from millions of accounts across the system (APRA, 2020). In Christopher Hall's experience, roughly one in three clients presenting for review while relying on default cover inside super are found to be holding protection that has fallen to a level most Australians would consider inadequate for their circumstances.

This sign is informational rather than a prompt to act: default cover suits some policyholders and not others, and the appropriate response depends on a full picture of income, debts, dependants and health. The interaction between cover held inside and outside super is covered in Arrow Equities' guide on whether life insurance inside super is enough, and the trade-offs of holding cover through a fund are set out in the guide to insurance through superannuation. Policyholders relying solely on default cover may wish to confirm what it actually provides with a qualified adviser before assuming it meets their needs.

The bonus sign — and often the costliest: is the policy quietly paying a "loyalty tax"?

The five signs above describe a policy that has drifted out of date structurally. A sixth reason is purely about cost, and in many reviews it is the largest: the loyalty tax that builds up on long-held policies.

The loyalty tax is structural, not misconduct. Insurers price new business competitively to win customers, while repricing existing policy books each year against claims experience — so the premium a long-standing policyholder pays gradually pulls away from what the same insurer charges a new customer for comparable cover. Nothing on the annual renewal notice flags the gap; it simply widens the longer a policy runs without review. Income protection is where this bites hardest: as covered under Sign 2, pre-2020 agreed value cover has been among the most aggressively repriced in the market, so the oldest income protection policies — exactly the ones most likely to be out of date — are often the ones carrying the widest loyalty-tax gap.

The size of that gap is not theoretical. In Christopher Hall's experience across 500+ policy reviews, restructuring long-standing cover to current market rates has produced premium reductions of 30 to 60 per cent — recoverable money rather than a notional saving. The only way to know the gap on a specific policy is to compare its current premium against current new-business rates, which is what a review does. Because addressing a loyalty tax can mean taking out new cover, it interacts directly with the insurable window discussed earlier — another reason the comparison is best made with a qualified adviser rather than acted on alone.

How are these signs checked? A professional income protection review

No single sign settles whether a policy should change — the five tend to appear together, and they pull in different directions. An out-of-date premium argues for a fresh comparison; an irreplaceable health record and a guaranteed-renewable structure argue for caution before cancelling anything.

A professional review is where those threads are weighed together. In Christopher Hall's experience across 500+ policy reviews, around 90 per cent of clients seek a review only after a mortgage change — refinancing, upsizing or a new purchase — which means a great many policies run for years between reviews while premiums, income and health all move. The policyholders most likely to have a policy that has drifted out of date are those whose cover was arranged once and never revisited — the same cohort most likely to be paying more than current market rates on an ageing policy through the loyalty tax described above. A professional insurance premium review examines the benefit, the structure, the cost against current rates, and whether the cover is positioned to be claimed where a deduction is eligible — without assuming the answer is to replace the policy.

Frequently asked questions

How do I know if my income protection is out of date?

Common signs are a benefit that no longer matches current income, an older agreed value contract that has been heavily repriced, a waiting or benefit period that no longer suits the household's finances, a premium that is never claimed as a deduction where one may be available, and reliance on default cover inside super. In Christopher Hall's experience across 500+ reviews, most out-of-date policies were arranged once and never revisited. A professional review is designed to surface these signs.

Should I cancel an old income protection policy?

Not without advice. An older policy reflects the health record the policyholder had when it was issued, and in Christopher Hall's experience the underwriting landscape has tightened over the past decade — cover that was straightforward to obtain years ago can be difficult or impossible to replace today. Most retail policies are also guaranteed renewable, meaning the insurer cannot cancel cover or single out an individual for a health-related increase while premiums are paid. Cancelling surrenders both. Policyholders should speak with a qualified adviser before changing or ending cover.

How often should an income protection policy be reviewed?

There is no fixed rule, but income protection is most usefully reviewed when circumstances change — a new mortgage, a change in income, a new dependant, or a move between jobs or super funds. In Christopher Hall's experience, around 90 per cent of clients come to a review only after a mortgage change, which means many policies run for years untouched while premiums and income both move. A periodic review checks that the benefit, structure and cost still fit.

Why does my income protection premium keep going up every year?

Two forces are usually at work. Most older policies are stepped premiums, which rise each year as the policyholder ages; on top of that, insurers reprice existing policy books against claims experience, so a long-held policy can drift well above what the same insurer charges a new customer for comparable cover — the loyalty tax. In Christopher Hall's experience, income protection written before the 2020 APRA reforms has been among the most heavily repriced. A review compares the current premium against current market rates.

What is the difference between agreed value and indemnity income protection?

An agreed value policy fixes the insured benefit on the income evidenced when the policy was taken out; an indemnity policy assesses the benefit against income at the time of claim. Under APRA's sustainability measures, agreed value income protection ceased to be offered on new policies from 31 March 2020 (APRA, 2020), so existing agreed value contracts can no longer be repurchased — which is why they are reviewed carefully rather than cancelled on reflex.

Can I still claim a tax deduction on my income protection?

Income protection premiums paid personally, for cover held outside superannuation, may — depending on individual circumstances — be claimed as a personal tax deduction, because they are paid to protect assessable income (ATO, 2026). The deduction applies only to the portion of the premium that protects income, and premiums for cover held inside super generally cannot be claimed personally. A qualified adviser or accountant should be consulted to confirm what applies to a specific policy.

Is the income protection in my super enough?

It depends on the policyholder's full circumstances. Default cover inside super is often limited — commonly a shorter benefit period, a longer waiting period, and unit-based cover that can reduce with age — and in Christopher Hall's experience roughly one in three clients relying on default cover are found to hold protection that has fallen to an inadequate level for their situation. Whether it is enough is a question to confirm with a qualified adviser against actual income, debts and dependants.

Does income protection cover redundancy or job loss?

Generally no. Income protection replaces a portion of income when illness or injury prevents work — it is not unemployment cover and does not pay out for redundancy or being made redundant. A policyholder who assumed their income protection would respond to job loss may be holding cover that does not match what they thought it did, which is itself a reason to confirm the policy terms. What a specific policy covers should be checked against its product disclosure statement or with a qualified adviser.

Can income protection cover be increased without a new medical assessment?

Sometimes. Some policies include a future insurability or guaranteed insurability feature that allows the insured amount to be increased at defined life events — such as a new mortgage, a salary rise, or a new child — without further medical evidence. Whether a policy carries that feature, and within what limits, varies by insurer and contract. Where a policy has no such feature, increasing cover usually requires fresh underwriting, which is where the insurable window becomes relevant.

What happens to income protection when someone changes jobs?

It depends on how the cover is held. A personally owned policy generally continues unchanged regardless of employer, because it belongs to the policyholder rather than the job. Default income protection attached to an employer's default super arrangement can change, reduce, or cease when someone changes funds or employers — and a new fund's default cover may carry different waiting periods, benefit periods, or no income protection at all. A change of job is one of the clearer prompts to confirm what cover is actually in force.

Book a quick review with an adviser

Book a quick review with an adviser now. A professional insurance premium review examines whether an income protection policy still matches a policyholder's income and circumstances, how its structure and cost compare with current market rates, and whether the premium is positioned to be claimed where a deduction is eligible — before any decision to keep, restructure or replace cover.

Find out if you're eligible →

About the Author

Christopher Hall, AdvDipFP, is the principal financial adviser at Arrow Equities and an Authorised Representative under AFSL 526688. He has completed more than 500 life insurance policy reviews for Australian families, with a specialisation in life risk insurance.

Sources

• Australian Taxation Office (ATO) — Income protection insurance (deductions you can claim).

• Australian Taxation Office (ATO) — Income protection insurance payments (amounts you must declare).

• Australian Prudential Regulation Authority (APRA) — APRA intervenes to improve sustainability of individual disability income insurance (collective DII losses of around $2.5 billion over five years), 2019.

• Australian Prudential Regulation Authority (APRA) — Sustainability measures for individual disability income insurance (cessation of agreed value contracts from 31 March 2020), 2020.

• Australian Prudential Regulation Authority (APRA) — Protecting Your Super package and Putting Members' Interests First (default insurance in superannuation), 2019–2020.

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