#4 What you need to consider

Insurance 101-Things to consider-Disability Income

Disability Income

How much you pay for this insurance product will most likely depend on the number of benefits (‘bells and whistles’) it has, plus the clarity and meaning around the words in the policy document. 

How does the insurer define “Total Disablement”? As this is probably the most important issue with this type of insurance.

Some policies talk about being unable to work in any occupation, while others say usual occupation.

Also, how do they determine when you are disabled, e.g. is it that you are unable to work more than 10 hours a week, or some other criteria?

You can only insure up to 75% of your income and if you need to claim due to a sickness or injury, you will be asked for your income details over the last 36 months. This figure, called the Pre-Disability Income, is the average income over this time, or the best 12 months earnings over
that period.

Some insurers offer ‘Agreed Value or ‘Loss of Earnings’ policies. What this means is you don’t need to prove your’e income when you claim, as the insurer has already agreed on the amount (the sum insured) at the time you applied. With an Indemnity or Loss of Earnings policy, they will calculate your Pre-Disability Income, as mentioned above.

Your Post Disability Income is any income earned, or received, after you have become disabled. This typically includes ACC and other benefits you receive, or to which you are entitled including, but not limited to, superannuation schemes, interest earned, etc.

Having made a successful claim against your disability income policy, you will want to know if you get a reduced benefit when you feel well enough to take on part-time work. See if there is any Partial Disability clause.

You can choose when you want to receive the policy benefit by selecting from a range of Waiting or No Pay Periods, e.g. 14, 30, 60, 90 days or even 12 months. This assists you to manage what you can afford. If you have good savings reserves, lengthy sick leave availability, or a working spouse, decide how long you can manage on existing financial resources and select what suits your circumstances.

Similarly, you may want to reduce your premium by electing a shorter Benefit Period. Options available can be 1 or 2 years, 5 years, or to age 60, 65 or 70. Premiums will increase each year as you get older, although a few insurers offer Level Premium plans.

Can your policy be suspended and if so for how long?

Reasons to suspend the policy may be for extended leave from work including, but not limited to parental leave, unemployment, or to take a sabbatical.

Are there any rehabilitation and/or retraining benefits that will assist in your disability recovery, and how long does this last?

Knowing what your product restrictions are is obviously important. Is there any Pre- existing condition clause?

This means that any personal illness or injury condition that was known and existed prior to signing of an insurance application is not covered by the policy, unless it has been disclosed and approved at the time of application.

Also, are claims ruled out as a result of mental illness, pregnancy, deliberate or Criminal Act, war or terrorism, HIV, consumption of alcohol or illegal drug use, etc.?

TPD (Total and Permanent Disability)

To qualify for a payout with this type of insurance a person must be both totally and permanently disabled so it can be difficult to qualify for a claim.

What are the policy definitions of these terms?

Is there a stand down period following total and permanent disability before the policy will be paid out?

Some policies do not require a stand down period for certain medical or physical conditions, e.g. dementia, multiple sclerosis, quadriplegia, etc.

This product has two different and important definitions or classifications:

“Own Occupation” – this talks about being unable to do your own, or usual, occupation.

“Any Occupation” – this says you cannot work in any occupation that is reasonably suited to your education, training or experience, and you are unlikely to ever engage in any occupation again.

What other conditions might this type of policy pay out on?

These could be the loss of sight or both limbs, cognitive impairment (brain disorder), or being unable to perform Activities of Daily Living. Known commonly as ADLs, this means activities that are necessary for daily care of oneself and independent community living.

There will be Exclusions in this product so you should be aware of these. They can include, but are not limited to, a deliberate or Criminal Act, self-inflicted injury, any non-prescribed drugs or misuse of prescribed drugs, war or civil commotion, etc.