Who will take care of your family and finances if you can’t due to illness or accident? There is a good reason behind purchasing personal income protection insurance and life insurance over.
You work hard to earn an income, take care of your family and build wealth. When I ask my prospective customers, who’s going to take care of you and your family financially if you can’t, there is often a quiet pause, or a common response is that I have some cover via super.
All covers are not created equal and there are some policy definition limitations of cover via super to be aware of. One of our recent claims highlights the importance of having a comprehensive insurance policy. It is also a good example of the depth or complexity in an income protection policy.
Our client Jack (name changed for privacy) in addition to being a Ducati rider was a 30 per cent shareholder in a business. Having worked long hours and for many years building up the business, decided to sell his share and exit, have a long-deserved holiday and then look for a corporate role with good income prospects, more manageable hours and without the responsibility that comes from being a business owner.
Unfortunately, a week before the business settlement was to take place, Jack suffered a serious illness. He was taken to hospital, he has been ill and not able to work for the past nine months. This has prevented Jack from finding work and being able to work within his occupation. He has had to let go of some great job offers.
Jack continues to get paid income protection monthly income for as long as he can’t work and up to age 65. If no remedy or cure can be found, preventing him from working again in his own occupation then there is the high possibility of a Total and Permanent Disability Claim.
Every claim situation is unique. Which is why it’s important to have the best coverage you can afford. Let’s look at some of important policy conditions for which Jack was covered and continues to receive income. It’s also important to speak with an adviser who understands the different contracts available.
Agreed Value Income Protection
The monthly income protection cover was guaranteed by the insurer because we had submitted two years of financials and personal tax returns. No matter what the financial future turns out to be, the insurer will pay a guaranteed benefit. This provides Jack peace of mind that his income is secure up to age 65. If Jack can work again but only at a reduced capacity, then the insurer will cover the income gap. Jack’s doctors and specialists decide if Jack can work or not.
Jack’s income protection policy is owned personally and not via a superannuation plan (eg industry fund cover). If the cover is owned via a super plan and you are not employed at the time of claim, then no benefit may be payable. To be compliant with the SIS Act, an income protection benefit cannot be paid out under a superannuation structure where the insured is not gainfully employed when a disability arises.
The policy is guaranteed renewal. Many accident and illness policies pay for 12 months or a 2 year maximum. Further to that, after you are on claim, the insurer can cancel the policy at next renewal. Jack’s insurer can’t cancel his policy. No premiums are payable while on claim.
After being on claim for 12 months, Jack’s monthly benefits get indexed with CPI 3 per cent to 5 per cent. This means that each year on claim the monthly benefit increases to keep pace with the cost of living. Not all policies in the market have a claim indexation benefit.
Total and Permanent Disability (TPD) Own Occupation
If Jack is not able to recover or manage the symptoms he is experiencing, he will need be assessed if it’s likely for him to go back to his own occupation. If he’s assessed by two medical practitioners that he is unlikely to work in his own occupation, the TPD lump sum cover is paid out which will assist Jack to repay his mortgage and reduce his living costs.
He will also then be able to consider his future training and employment opportunities. If Jack had an Any Occupation definition (e.g. Super cover, Industry Super cover), an assessment of re-training and doing another job based on past experience, education and training, would have been part of the assessment. In Jack’s case this would make it more difficult to qualify for the TPD payout. Fortunately, Jack can be assessed for his own occupation.
Jack has an Insurance adviser to review the levels of cover, assist with cost management and in the event of a claim, help to manage the process and understand Jack’s rights under the policy and with the insurance company.
Many of our customers have told us in the past, “I’m paying these premiums and hope that I never have to claim. But if I do need to claim, I want to be covered adequately.” – Lawrence