What's the difference between Agreed Value and Indemnity Income Protection policies?

New Agreed Value policies are no longer sold in Australia. Since 31 March 2020, all newly issued retail Income Protection contracts are indemnity-based, later confirmed by APRA's October 2021 IDII reforms. Existing pre-2020 Agreed Value contracts may continue under their original terms.

The two structures

Agreed Value (historical, no new policies)

Under an Agreed Value policy, you and the insurer fixed your monthly benefit at application time based on your income then. At claim time, the insurer paid the agreed amount regardless of your current earnings. This gave certainty to commission-based, self-employed, or variable-income workers whose earnings might drop between application and claim.

Indemnity (the only structure available for new business)

Under an indemnity policy, your monthly benefit is calculated at claim time from your actual recent earnings. The lookback is typically the highest consecutive 12 months in the 2-3 years before disability, depending on insurer. The sum insured on your schedule is a maximum, not a guaranteed payment.

What APRA changed and why

APRA issued a Letter to All Life Insurers in December 2019 and again in May 2020, citing $5+ billion in industry IP losses over five years. The May 2020 letter banned new Agreed Value contracts from 31 March 2020. The October 2021 IDII Information Paper consolidated the framework: indemnity-only, 70% replacement cap, mandatory 24-month income reset for long-running claims (apra.gov.au).

How each panel PDS reflects this

| Insurer | Structure | PDS evidence | |---------|-----------|---------------| | AIA | Indemnity Only and Extended Indemnity columns; Agreed Value only available when replacing existing Priority Protection Agreed Value cover | Section 5, PDS 9 Nov 2025 | | TAL | Indemnity is the default for Accelerated Protection | Section 2.6 (PDS 12 Dec 2024) | | Zurich | "This policy provides indemnity cover" stated explicitly | Section: Income protection (PDS 1 Nov 2025) | | OnePath | Indemnity benefit payment is the contract default | Income Secure Cover (PDS Oct 2025) | | ClearView | Indemnity is the default; business expenses also indemnity | Income Protection (PDS 13 May 2024, Update 5 Jun 2025) | | NEOS | Indemnity only; no Agreed Value option in PDS | Income Support Cover (PDS 6 Dec 2024) | | Encompass | Indemnity only by absence of Agreed Value clause | Income Protection cover (PDS 26 Sep 2025) | | Acenda | Indemnity cover defined; "Income Replacement Ratio Amount" basis | Glossary (PDS 27 Sep 2025) | | Futura | Indemnity only by absence of Agreed Value clause | Income Protection Cover (PDS 1 Oct 2025) |

What this means if your income varies

The loss of Agreed Value mostly affects commission earners, sole traders, contractors, and people whose income trajectory may dip. Under indemnity, the recent earnings test means a bad 12 months before a disability claim could reduce your payable benefit even if your sum insured is higher.

Three practical responses are available under current contracts.

• Best 12 of 24 (or 36) months test: some insurers use the highest consecutive 12 months in the lookback window, smoothing out a one-off bad year. Check the PDS for the exact lookback.
• Income link / income protection lock options: a few insurers let you re-disclose your higher historical income at points during the policy, locking in a higher benefit basis. Availability and rules vary.
• Maintain income records: keep tax returns, BAS, profit-and-loss statements, and contracts so you can substantiate higher pre-disability income at claim time.

If you hold a pre-2020 Agreed Value policy

Do not let it lapse without understanding what you lose. New replacement cover under post-2021 rules cannot match the Agreed Value structure. Discuss any change with a licensed adviser before cancelling legacy cover. This is general information, not personal advice.