Planning & Life Risk

Five things COVID-19 has taught us about Income Protection

By: Leza Wells, Chief Product Actuary of life insurer FMI (a Division of Bidvest Life Ltd)

If the COVID-19 pandemic has taught the life insurance industry anything, it’s that we need to do a far better job of creating a broader awareness around income protection. What it is. What the benefits are. Why it makes sense. And judging by some of the queries we’ve received during lockdown, we should also be making sure our customers know what it isn’t.

So what have we learned?

More education is needed on what a claimable event is.

‘I don’t have COVID-19, but I’m in lockdown because of the pandemic, and I can’t work. Can I claim on my income protection policy?’ We’ve had to explain to many customers that income protection is designed to help if they develop an illness, or become injured. If they can’t work because of an unforeseen national lockdown, this isn’t a claimable event.

There’s a belief that insurers should help regardless of their actual cover.

Many customers may not be aware that insurance operates on a pooling of risk concept and that insurance companies calculate their income protection policy premiums based on the number of expected injury or illness claims for a group of policyholders. The national lockdown introduces an entirely different set of risks, including the loss of income due to business interruption, which insurers have not priced for. Insurers have an obligation to protect their existing policyholders’ funds and treat customers fairly. If insurers were to pay everyone who was losing income due to the lockdown, but wasn’t ill, they would not be able to pay valid claims from existing policyholders, like for cancer, death or disability. 

Like most life insurers, we at FMI have been doing everything we can to support our policyholders. We’re extremely empathetic when it comes to assessing COVID-19-related claims, and weigh each claim on a case-by-case basis. Our claims team is renowned for building long-term relationships with our customers, and it’s incredibly stressful to not be able to help everyone in this current situation. The reality is that we have a responsibility to our other policyholders, and the broader industry.

Customers need to pay more attention to the terms of their own policies.

Even where our clients have contracted COVID-19, and are unable to work, their ability to claim depends on the waiting period specified in their policy and severity of the condition. Under a 7-day waiting period, they would qualify for a payout if they were displaying COVID-related symptoms – diagnosed and subsequently booked-off by a qualified medical doctor. This would be paid under the ‘minor infections’ definition on short waiting period income protection.

If they have a 14 or 30-day waiting period, they would be able to claim on their income protection policy if there are complications related to COVID-19 that keeps them off work beyond that specified time, which again, would need to be supported by a medical doctor.

These different waiting periods are included in income protection policies and it’s extremely important that policyholders understand these differences when it’s time to claim.

We must help customers who are battling to pay their premiums.

Often, when finances get tight, life insurance is the first monthly expense to get cut. We, as an industry, must make customers aware of the importance of not letting their policies lapse. This is the time that they may need it the most. Where clients have challenges keeping their premiums up to date, we’ve got to make sure they’re talking to their financial advisers to explore the options available to them.

Depending on their specific policies, the options that FMI offers may range from a grace period, where clients can keep their cover in place for up to 60 days after missing a premium payment; a reinstatement option, where they can reduce their cover and premiums on certain benefits, and the cover can be increased back to the original amount on the next policy anniversary; a freeze benefit, where they can freeze their policy for 3 or 6 months; or even a sabbatical option, which allows them to keep their temporary and extended income protector and disability lump sum cover in place for up to a year if they aren’t working, with certain conditions.

We need to build adviser-client relationships.

Perhaps our biggest learning has been that we need to double our efforts to nurture great relationships between our clients and their financial advisers. Clients need to understand exactly what cover they’re taking out, the role of that specific cover, and how it supports them in reaching their long-term financial goals. If we can do that, we will go a long way towards building trust in the industry – and having to avoid difficult conversations the next time a crisis strikes.

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