Temporary income protection is not enough

By: Elmarie Samuel – Senior Technical Marketing Specialist at FMI (a Division of Bidvest Life Ltd)

When it comes to income benefits, many customers only have temporary income protection, which typically pays for 24 months. But what would happen after the benefit term if a claimant is still unable to work? Without extended income protection, they would face unimaginable financial strain. That’s why it’s important to insure 100% of your clients’ income against temporary risk AND long-term injuries and illnesses.

Once a claim reaches the end of the temporary income protection benefit term, there are a number of issues which a customer may face:

The policyholder has no Extended Income Protector cover. During 2019, 25% of FMI policies sold with a Temporary Income Protector benefit had no Extended Income Protector cover.This means that once the benefit term on the Temporary Income Protector has ended, payments will cease. While some policyholders may have additional cover with another insurer, many do not. What’s more, industry behaviour suggests that these long-term income protection benefits, intended to ensure financial stability for a customer up until retirement, is often done at a compromised cover amount.

The policyholder has insufficient Extended Income Protector cover. 22% of FMI’s Extended Income Protector policies are sold with less cover than the Temporary Income Protector benefit. This means that a claim can be paid until retirement, but there will be a reduction in the monthly claim amount once the end of the Temporary Income Protector benefit term is reached. This might be because traditionally most insurers only allow a client to cover 75% of their income against disabilities that last longer than 24 months. At FMI, we don’t have the same restriction – we believe that your clients should be able to cover 100% of their income until retirement.

No claims escalation on Extended Income Protector cover. Claims escalation ensures that the payout a client receives on an income protection policy keeps pace with inflation. While most individuals select claims escalation on the Extended Income Protector benefit, 2% of new FMI Extended Income Protector benefits sold in 2019 were done so without claims escalation.

To experience the importance of extended income protection first hand, watch FMI policyholder, Anna-Marie Coetzee’s story. A computer programmer, Anna-Marie was the breadwinner for her family of five, until a simple gall bladder operation in 2013 led to a series of health complications and lengthy hospital stays. As a result, she is now permanently unable to work. Due to her Extended Income Protector policy with FMI, she’s able to continue to provide for her family until her retirement age. Without this policy in place, her family would have no source of income.

Many customers assume lump sum disability benefits will protect them against long-term risk events. However, lump sum payouts require permanence, which is not a requirement for extended income protection. And when you consider that 4 out of 10 of our clients who have ever claimed on the Extended Income Protector were not permanently disabled, the risk of not having long-term income protection in place becomes clear.

As an adviser, it’s your knowledge and guidance that can make all the difference to your client’s claim experience. Help them understand not only their risks, but also the options available to them to protect them against those risks – so they can go on and continue to take care of themselves and their loved ones, no matter what happens.

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