At a glance:

  • Explore the evolving insurance landscape and its impact on policyholders as Agreed Value Policies undergo significant changes.
  • Understand how the end of Agreed Value Policies may affect your financial security in times of crisis, with reduced payouts and stricter income-related criteria.
  • Discover how shifts in insurance terms and conditions can influence trust in insurance providers and potentially alter consumer behaviour regarding insurance choices.



In the ever-evolving landscape of the insurance industry, where the fine print of policies can often be as confusing as they are pivotal, a significant transformation is taking place—one that promises to reshape the relationship between insurers and policyholders. At the heart of this transformation lies the concept of “Agreed Value Policies,” which have long been a cornerstone of insurance contracts, offering a sense of financial security to policyholders in times of need.


However, as regulatory bodies begin to revaluate their efficacy, these policies are facing a reckoning. This introduction aims to shed light on the changing paradigm surrounding Agreed Value Policies, exploring the basics of how they operate, and examining the implications of their impending demise. The crux of the matter is this: What does the end of Agreed Value Policies mean for policyholders, and how will this shift impact their financial well-being in times of crisis?


What Does The End Of Agreed Value Policies Mean For Policy Holders auw



What does Agreed Value Policies Really Mean?


Agreed value policies are those where the policy payout value is assessed on the agreed income at the time the policy is taken out, rather than at the time of a policy being activated. Essentially, the regulator’s concern is that in instances where the agreed value of a policy is greater than the insured’s income at the time a claim is made, then there is limited incentive for policy holders to undertake actions aimed at returning to work. The proposed changes mean that new policies will be required to make insurance payouts based on the previous twelve months income at the time of a claim. 


As we delve deeper into this transformation, we will unravel the implications and complexities, equipping policyholders with the knowledge needed to navigate this shifting terrain with confidence and foresight.


Impacts of Agreed Value Policies



Reduced Payouts for Income Changes


Policyholders who experience a decrease in income due to reasons such as redundancy, unpaid leave, or maternity leave in the 12 months preceding a claim may receive substantially lower payouts compared to what they might have expected under agreed value policies.



Strict Link to Recent Income


New income protection policies are closely tied to the income earned in the 12 months leading up to the claim. This means that if a policyholder switches to a lower-paying job or experiences temporary income reductions, their claim payout will be based on their most recent income, potentially resulting in significantly lower benefits.



Introduction of Benefit Caps



100% of Income for Initial Six Months


Policies may have a benefit cap of 100% of the policyholder’s income for the first six months after a claim. This aims to provide substantial coverage during the immediate period of need.



75% beyond Six Months


Beyond the initial six months, the benefit may be capped at 75% of the policyholder’s income. This encourages policyholders to plan for the longer-term financial impact of an injury or illness.



Maximum Payout Limits


Proposed maximum payout benefits may be set at $30,000 per month ($360,000 per annum). This encourages higher earners to rely on their savings for additional coverage, as their income may exceed this limit.



Shorter Initial Contract Terms


Policies may have an initial contract length of only five years. This ensures that terms and conditions remain relevant to the policyholder’s circumstances and allows for periodic review and adjustment.



Stricter Definition of Disability


Agreed value policies may adopt a more stringent approach to defining disability, especially in relation to longer policy durations. This could lead to a narrower scope of conditions or criteria that qualify for disability benefits.


What Does The End Of Agreed Value Policies Mean For Policy Holders aspect



End of Agreed Value Policies: Impact for Policyholders



Insurance Policies


In insurance, an “Agreed Value” policy is one where the insurer and the policyholder agree on the value of the insured item (such as a car or property) at the beginning of the policy. If such agreements are dismissed, it could affect how insurance payouts are calculated. The impact on policyholders could be that they receive payouts based on the current market value of the insured item rather than the previously agreed-upon value. This may result in lower payouts for policyholders.



Financial Investments


If “Agreed Value” is associated with financial investments, its dismissal could impact the valuation of those investments. Investors may need to revaluate the worth of their holdings based on different criteria, potentially affecting their investment decisions.



Legal and Regulatory Implications


The dismissal of Agreed Value could have legal and regulatory implications. It may lead to changes in how insurance contracts are structured and regulated in Australia, affecting both insurance companies and consumers.



Consumer Confidence


Changes in insurance terms and conditions can influence consumer confidence. If policyholders feel that their agreements are not being honoured as they were previously, it could impact their trust in insurance providers and potentially lead to changes in consumer behaviour regarding insurance choices.



Industry Competition


Dismissal of Agreed Value in a specific sector of the market could also impact competition within that sector. Insurance companies may need to adjust their offerings or pricing strategies, which could have ripple effects on the industry landscape.



Financial Planning


Financial planners and advisors may need to revise their strategies and recommendations for clients, taking into account the changes in insurance terms and their potential impact on financial planning.



The impending end of Agreed Value Policies marks a significant shift in the world of insurance, one that carries far-reaching implications for policyholders. As we have explored, the essence of these changes lies in the recalibration of insurance payouts, transitioning from agreed values at the policy’s inception to payouts based on the previous twelve months’ income. This shift introduces a new dimension of financial uncertainty and impact on policyholders, particularly those experiencing fluctuations in their income due to various life events.


With this transformation, the landscape of insurance undergoes a fundamental evolution, challenging the very core of the insurance-consumer relationship. While these changes aim to address potential moral hazard concerns, they also raise questions about fairness and adequacy in providing financial protection when policyholders need it most.


The impact of these changes resonates across various dimensions of policyholders’ lives, from reduced payouts to stricter income-related criteria, benefit caps, and shorter contract terms. As policyholders grapple with these adjustments, they are forced to revaluate their financial planning, potentially affecting their investments, trust in insurance providers, and overall consumer behaviour.


In this dynamic environment, both insurers and policyholders must adapt to this new reality. Insurance companies will need to fine-tune their offerings and communication to ensure transparency and understanding among their clients. Meanwhile, policyholders must engage in proactive financial planning and explore alternative means of safeguarding their financial well-being.


As we navigate this era of change, the end of Agreed Value Policies underscores the importance of staying informed and empowered as a policyholder. While challenges may arise, a well-informed approach can help individuals make the best decisions for their financial future in this ever-evolving landscape of insurance.


Ultimately, what the end of Agreed Value Policies means for policyholders is a call to action—to assess, adapt, and secure their financial peace of mind in an insurance landscape that continues to transform.


Mike Wallis

Mike has over 25 years experience, having spent his first seven years working as a Broker at Jardine Lloyd Thomson in Melbourne and in 2002 was transferred to JLT’s Accident and Health Department in London. For four years (2002 – 2005) Mike was a specialist A&H Lloyd’s Broker and during this time developed excellent relationships with the Lloyd’s A&H underwriting fraternity. In 2006 he returned to Australia in a senior broking position with overall responsibility for Placement Strategy, including the implementation of underwriting facilities and the various authorities granted by Lloyd’s. Mike was the underwriter at two specialist Underwriting Agencies prior to founding Aspect Underwriting in 2016.