Can Income Protection Insurers Cancel Your Policy Without Notice?

At a glance:

• Income protection policies are not usually cancelled without notice unless specific policy conditions apply.
• Non-payment of premiums is the most common reason for policy cancellation, often with a grace period.
• Policies can also be cancelled for misrepresentation, breaches, material changes in risk or policy expiry.
• Policyholders have the right to clear explanations and dispute resolution if cancellation occurs.

Income protection policies are designed to provide financial support to individuals who are unable to work due to illness or injury. Benefits usually begin after a waiting period, which can range from a few days to several months. Understanding policy terms like waiting periods, benefit amounts, and exclusions is crucial.

Some policies may require periodic medical assessments to confirm ongoing eligibility. Periodically reviewing the policy ensures it meets your needs, and staying informed about any updates from the insurer is important. Insurers usually do not terminate policies without notice unless premiums are unpaid or terms are violated.

This blog explains when an income protection policy may be cancelled, the notice requirements for cancellation and the steps to take if cancellation occurs.

When Can an Income Protection Policy Be Cancelled?

Income protection is meant to provide long-term support, but certain conditions can end coverage. Here are the situations where a policy may be cancelled:

Cancellation Due to Non-Payment of Premiums

If you fail to pay your premiums on time, the insurer may terminate your policy. Understanding the payment terms and due dates outlined in your policy is essential to avoid this scenario.

Many income protection policies include a grace period. This provides a brief window to pay overdue premiums without losing coverage immediately. For example, if a direct debit fails due to insufficient funds, the insurer may notify the policyholder and provide time to make payment through an alternative method. If the premium is paid within the grace period, the policy generally continues without interruption.

Setting up automatic payments or reminders is one of the ways to help prevent missed payments. Monitoring your premium payment history and ensuring your insurer has updated payment information is also crucial. By staying informed and proactive, you can safeguard the financial security your income protection policy provides.

Remember, your income protection policy being cancelled for non-payment of premiums can leave you vulnerable without any financial support in the event of illness or injury. Take the necessary steps to ensure that your premiums are paid on time to maintain the continuity of your income protection coverage.

Read More: What Happens When You Miss an Insurance Premium Payment

Other Circumstances Where Cancellation May Apply

While non-payment of premiums is a common reason, income protection policies can also be cancelled for other reasons. These situations must align with the terms agreed to when the policy was issued.

• Misrepresentation or Fraud: If you provide false information or omit important details during the application, it can result in a material misrepresentation. In such cases, the insurer may take action in accordance with Australian insurance law, which requires both parties to act with utmost good faith.
• Policy Violations: The policy may be cancelled if you engage in activities that breach the terms and conditions of the policy. This may include failing to disclose relevant information or participating in high-risk occupations not disclosed to the insurer.
• Changes in Health or Occupation: If there’s a significant change in your health status or occupation that affects the risk profile, the policy terms may limit cover, apply exclusions or affect claim outcomes rather than result in automatic cancellation. However, insurers in Australia are generally required to provide reasonable notice and options for policyholders in such cases.
• Insolvency of the Insurer: If an insurer in Australia becomes insolvent or is placed under regulatory administration, policies may be transferred, restructured or managed as part of the regulatory process to protect policyholders’ interests.
• Legal or Regulatory Reasons: Changes to Australian laws or regulations affecting insurance policies may result in the cancellation of certain policies, particularly if the policies no longer comply with legal or regulatory requirements. 
• Policyholder’s Death: If you pass away, the income protection policy will terminate. As income protection cover applies only during the policyholder’s lifetime, benefits cease upon death.
• Policy Expiration or Termination: The policy may be cancelled upon reaching its expiration date or terminated according to the specified terms and conditions. Insurers typically inform you in advance of policy expiration.

Read More: Obligations to Notify Your Income Protection Insurer About Job Changes or Loss

Policyholder’s Rights During Income Protection Insurance Cancellation

In Australia, policyholders have the right to receive clear communication regarding the cancellation of their insurance policy. Insurers must provide detailed explanations for the cancellation and any relevant policy provisions or regulations that support it.

If you disagree with a cancellation decision, you can challenge it through the appeals process. This process typically involves the following steps:

• Internal Review: You may first request an internal review of the insurer’s cancellation decision. During this stage, the insurer will reassess the circumstances surrounding the cancellation and consider any additional information you provided.
• External Dispute Resolution: If you are still dissatisfied after the internal review, you can escalate the dispute to the Australian Financial Complaints Authority (AFCA). AFCA provides an independent and impartial avenue for resolving disputes between consumers and financial services providers.
• Formal Complaint: You may submit a complaint to AFCA, including details of the dispute and any relevant documentation. AFCA will then investigate the matter and facilitate negotiations between the parties involved to reach a resolution.
• Decision: AFCA will issue a decision based on the evidence and arguments presented by both parties. This decision is binding on the insurer, meaning it must comply with any remedies or compensation awarded to you if the complaint is upheld.

What to Do If Your Income Protection Policy Is Cancelled?

If your income protection policy is cancelled, it’s important to act promptly to understand the reasons for the cancellation. Below are the steps you can take:

Contact the Insurer

Contact your insurance company to inquire about the reasons for the cancellation. Request clarification on the specific policy provisions or circumstances that led to the decision. Understanding the rationale behind the cancellation is crucial for determining your next steps.

Review Policy Documents

Make sure to thoroughly review your policy documents to confirm that the cancellation complies with the contract’s terms and conditions. Pay close attention to any clauses regarding cancellation, non-payment of premiums or policy violations that may have led to the cancellation.

Gather Evidence

Compile any relevant evidence or documentation that supports your case, such as correspondence with the insurer, policy statements, payment records and any other relevant information. It is necessary to have clear evidence to strengthen your position during mediation or dispute resolution proceedings.

Explore Alternatives

Depending on the reason for the policy cancellation, it may be appropriate to explore alternatives to maintain income protection coverage. This could include applying for a new income protection policy with a different insurer, adjusting benefit settings or exploring a different structure. It’s also important to check whether coverage through superannuation is available and how it compares in terms of eligibility, definitions and benefit features.

Income protection insurers generally do not cancel policies without notice, except in limited circumstances permitted under the policy terms and Australian law. Key cancellation reasons include non-payment of premiums, fraud, policy violations, changes in health or occupation, insurer insolvency, legal issues, policy expiration or the policyholder’s death.

You have the right to clear communication about why a policy is cancelled. If you disagree with the decision, you can request an internal review and escalate the matter to an external dispute resolution body. Reviewing policy documents for specific cancellation terms and seeking clarification from the insurer, as needed, are crucial steps in safeguarding your financial security.

If you need clarity around income protection policy cancellation or notice requirements, Aspect Underwriting can help you understand how your policy terms apply. As an experienced underwriting specialist, we help you navigate policy terms with confidence.

Contact us today to better understand your policy cancellation rights.

FAQs

Can my income protection cover be reduced or altered instead of fully cancelled?

Yes. In many cases, an income protection policy may be altered rather than fully cancelled. This can include changes to benefit amounts, waiting periods or policy terms, provided the policy allows for adjustments, and the insurer agrees.

What happens to claims in progress if a policy is cancelled or lapses?

If a claim is already in progress when a policy is cancelled or lapses, it may continue to be assessed or paid if the insured event occurred while the policy was active. However, this depends on the policy terms, the reason for cancellation and whether all policy conditions were met at the time of claim.

Are income protection policies treated differently if they are held through superannuation?

Yes. Income protection policies held through superannuation are subject to superannuation law and fund rules, which can affect eligibility and how cover continues. Because the cover is linked to super fund membership and, in some cases, employer contributions, changes to employment or contribution flows can result in the cover being suspended or ceasing.