What happens to key person insurance premiums if the key person's health deteriorates?

Existing cover stays at the original premium even if the key person's health deteriorates after policy commencement. Health-driven repricing applies only when the business seeks to increase cover, takes out new cover, or lets the policy lapse.

This is general advice only. Engage a licensed adviser to review the policy before relying on continuity of cover.

How the contract handles in-force cover

A panel Life, TPD, Trauma, or Income Protection policy is underwritten at application based on the key person's then-current health, occupation, smoking status, and lifestyle. Once issued, the contract guarantees:

• Continued cover at the agreed sum insured (subject to premium payment)
• Guaranteed renewability to the policy cessation age (typically 70 to 99 for Life; 65 for TPD; 65 to 70 for Trauma; 65 to 70 for Income Protection and Business Expense Cover)
• No mid-policy underwriting for the existing benefit amount

This is a foundational protection under the Life Insurance Act 1995 (Cth) and the Insurance Contracts Act 1984 s29 duty of utmost good faith. The insurer cannot re-rate or cancel for health changes post-issue.

Premium structure determines the trajectory

Two standard premium structures behave differently as the key person ages:

• Stepped premiums rise each year with age, regardless of health changes. Lower in the early years; significantly higher in later years.
• Level premiums are fixed at the original entry-age rate to a defined cessation age (typically 65 or 70). Higher in the early years; cheaper in later years.

Health deterioration does not alter either trajectory for in-force cover. Indexation increases (typically CPI or 5 per cent) apply each year if the policy carries automatic indexation; these are pre-underwritten and do not require medical reassessment.

Where health deterioration does affect pricing

Four scenarios force fresh underwriting:

Sum insured increases beyond the forward-underwriting allowance

If the business wants to increase the sum insured beyond what the policy's forward-underwriting allowance permits, the insurer underwrites the increase at current health status. Outcomes range from standard rates, premium loadings, exclusions, to declined cover.

Forward-underwriting allowances on the panel:

• AIA Business Safeguard Forward Underwriting allows future increases up to $10 million without medical evidence on Life, TPD Stand Alone, and Crisis Recovery Stand Alone, with the trigger being a documented business event (AIA Priority Protection PDS 9 November 2025, Section 8.12, page 157)
• Acenda Business Safeguard Option allows future increases up to $15 million for Life Cover, $5 million for TPD professional, $3 million for TPD other, and $2 million for Critical Illness, also tied to business-event triggers (Acenda Insurance PDS 27 September 2025, pages 56 to 58)
• Zurich, TAL, OnePath, ClearView, NEOS, Encompass, Futura all offer Future Increase Benefit / Guaranteed Future Insurability with business-event triggers; per-event caps typically $200,000 to $1 million depending on insurer

New cover types added

Adding Trauma cover to an existing Life and TPD policy, or adding a new Income Protection layer, requires fresh underwriting.

Policy lapses and reinstatement

If the policy lapses (premium not paid), reinstatement past the cure window requires full underwriting at current health. Set up direct debit, BPAY, or automatic credit card to avoid this.

New policy on a different insurer

Moving Key Person cover from one panel insurer to another requires full underwriting at the new insurer. If the key person's health has deteriorated, the new application may be loaded, excluded, or declined.

Duty of disclosure at application

Under Insurance Contracts Act 1984 s20B (effective 5 October 2021), the policy owner and life insured must take reasonable care not to make a misrepresentation when applying. Failure exposes the insurer to remedies under s28A to s28D: proportionate remedies for innocent or negligent misrepresentation, and rescission only for fraud.

Health disclosures must be complete at application. Once the policy issues, no further duty applies to disclose new health events for existing cover.

Strategic implications for Key Person structuring

Three practical implications:

• Apply early, while the key person is in good health, to lock in standard rates and full coverage breadth
• Build in forward-underwriting capacity through Business Safeguard / Future Increase Benefit options at inception
• Maintain continuous cover to avoid reinstatement-driven re-underwriting

Cross-references: APRA Capital Standard LPS 117 (capital framework for retail life insurers, which determines the headroom insurers have to maintain stable premium rates), APRA Information Paper on Individual Disability Income Insurance (October 2021, for IP-style Key Person cover post-IDII reforms), and Life Insurance Code of Practice 2019.