Agreed Value vs Indemnity Income Protection

Both types are designed to replace a portion of your income, generally up to about 70%, if illness or injury stops you from working. The difference is how the benefit is calculated.

Agreed value means your income was assessed and verified when you applied. The insurer agreed up front on the income figure your benefit is based on, so you have certainty about the amount before you ever claim. Indemnity means your income is assessed at claim time instead, using your earnings over a set period before the claim. The cover amount you applied for is a maximum, but the benefit actually paid depends on what you were earning recently.

It depends which type you hold. With agreed value, the income was declared and verified up front, so at claim time you generally do not need to re-prove your income to set the benefit. With indemnity, the benefit is based on income you have to prove at claim time, using your earnings in the period before the claim.

This is the practical heart of the difference. Agreed value gives more certainty because the figure was settled when you were well and your records were easy to gather. Indemnity asks for that proof at the point you are unwell and may have had a recent income dip.

This is where the two types behave very differently. Under an indemnity policy, if your income has fallen in the assessment period before a claim, the benefit can be reduced to match that lower income, even if you were paying premiums based on a higher figure. Variable or seasonal income can make this harder to predict.

Agreed value was particularly valued by self-employed people and those with fluctuating income, because the benefit was fixed up front and did not move with later earnings. With indemnity now being the standard for new cover, keeping accurate and up to date income records matters, so your earnings can be substantiated clearly if you ever need to claim.

Variable income is especially common for self-employed tradies, which is one reason cover for trades needs its own thinking. Our guide to life insurance for tradies covers it.

We cannot tell you whether to switch, because that depends on your personal circumstances, but we can explain the trade-off clearly. Indemnity cover is often priced lower, so moving to it may reduce your premium. The cost of that saving is certainty: your benefit would then be assessed on your income at claim time rather than the figure locked in up front.

If you currently hold an agreed value policy, it may be worth keeping, especially if your income varies or you are self-employed, because new agreed value cover is generally no longer available to replace it. The right answer weighs the premium saving against the loss of claim-time certainty, which is exactly the kind of decision worth talking through with an adviser before acting.

Generally no, not as a new policy. Since APRA's intervention took effect on 31 March 2020, agreed value income protection has generally not been offered as new business in Australia, so new applicants are typically looking at indemnity cover. If you already hold an agreed value policy, it may still be in force and worth reviewing before you change anything.