By: Old Mutual Corporate Consultants
Starting a new job can be overwhelming! Amid learning the ropes, onboarding also requires making important decisions like deciding what percentage of your salary to put towards your retirement savings each month. Over time, things change, and you settle in. After each promotion, you increase your retirement contributions; as your family grows, you remember to update your beneficiaries included in your death cover. But have you ever considered updating your disability cover to reflect your current lifestyle needs?
This is a question posed by Samantha Jagdessi, Head of Benefits Consulting at Old Mutual Corporate Consultants, who says many employees neglect to double check that their risk cover is in line with their changing occupational needs. “An injury can significantly impact your ability to earn an income,” says Jagdessi. “Time passes, and life happens. With age, your health and financial requirements change and the disability cover provided by your employer may not meet your financial needs or the physical demands of your lifestyle.”
Despite the fact that most large companies offer their employee’s group cover benefits, a study by the Association for Savings and Investment South Africa (Asisa) last year showed that for an average family to maintain its standards of living after a disability event, households would require insurance cover of around R28.9 trillion.
However, the extent of actual cover in force amounts to only R13 trillion, leaving a disability insurance gap of around R16 trillion. For the average individual income earner, this represents a life cover shortfall of more than R900 000 and a disability cover shortfall of over R1.1 million. This means that even if you have group life cover in place, it may be insufficient to adequately address your needs.
“Employers generally offer a standard level of disability cover linked to your pensionable salary. However, disability cover is not a one size fits all approach. If you decide on a lower pensionable salary you will probably have a lower benefit payable on disability. When considering the rising cost of living however, very few can afford to live on their pensionable salary alone.”
Each employee will have different needs and will require a different level of insurance explains Jagdessi. “Employers are not in the financial or practical position to always provide satisfactory risk benefits and members could easily find themselves underinsured. It’s the responsibility of the employee, not the employer, to ensure that the cover meets their needs and that they’re not left underinsured.
“It’s also critical that members understand the legal terms of their insurance contract, especially how their policy defines ‘permanent disability’.
She uses an example of a skilled surgeon unable to earn an income due to a motor car accident. “If the policy provides for a temporary income benefit if he or she, for a short period of time, is unable to perform ‘his own occupation with his own or another employer’ due to a hand injury, then he’ll receive an income benefit on a month to month basis.”
However, if the surgeon insists that his disability is permanent, the policy’s definition of disability is a lot stricter. “If the policy reads ‘a member is unable to perform his own or similar occupation’, the onus will fall on the surgeon to prove he’s unable to perform another job in his field,” says Jagdessi. “In other words, he’ll need to prove in this example that he’s unable to lecture medical students, or manage the hospital, or the like.”
If the wording of the disability insurance reads ‘a member is unable to perform any occupation for any employer’, the surgeon would be considered ‘disabled’ only if it was impossible to perform any of his previous duties or any other occupation. “He would need to prove he’s unemployable, in this example he would have to sustain a very serious injury, for example a brain injury, to qualify.
“Generally the rule suggests that the more permanent the disability, the stricter the definition. Lump sum benefits are typically only paid out when you are permanently disabled, whereas income benefits can provide for both temporary and permanent disability,” says Jagdessi. “The broader the definition of disability, generally the lower the cost of the policy. While it’s important to balance what you can afford to pay each month and having adequate cover, you never want to be left vulnerable when you need protection the most.”
Apart from ensuring that you’re not underinsured, Jagdessi suggests the following to members.
- Have your personal details been uploaded correctly and do they need to be updated? You may have moved house or changed cell phone numbers. Your policy documents and updates may be posted to the wrong address. If, at claims stage, your policy is found to have changed significantly, you may find that the insurer did try to notify you, but was unable to do so because your contact details were out of date.
- Is there a waiting period on your policy? This could mean two things. In the first case, the waiting period could mean that after you first take out the policy, there is a waiting period of one to two years before any claims will be recognised. In the second case, there might be a waiting period following an accident and before your benefit is paid out, for example, six months. This waiting period is usually to ensure that any disability is a permanent injury and will permanently impact your ability to earn an income. If there is a waiting period, are you aware of the employer remuneration policy for the first few months when the insurer is not paying any benefit, and you are unable to work?
- Have your income levels changed beyond inflationary rates and do these details need to be updated on your policy? Again, your income details on your disability insurance policy would need to be updated.
- Have you fully disclosed all details of any pre-existing health conditions or ailments to your insurer? The recent annual report for the Long-term Insurance Ombudsman shows that 50% of complaints related to disability insurance, had to do with insurance claims that were declined due to the client not disclosing information properly. In at least two of these complaints, the members had not fully disclosed material changes in their income, or details regarding similar policies with other insurers. Some policies do not require disclosure but, at claim stage, a claim may be declined if a pre-existing condition exists.
- What are the exclusions on your policy? For example, if you suffered from asthma as a child, this condition might be excluded from your policy. This means any complication resulting from asthma would not be covered by the policy. Also, as medicine progresses and new conditions are diagnosed, some insurers update their policies to include new exclusions.