Income protection products replace some of your income if you become too disabled to work, and you remain disabled for longer than your chosen waiting period.
You do not need to be permanently disabled to claim on a disability income protection product; periods of temporary disablement are also covered – in fact most claims against disability income products only last for a relatively short time period.
The good news is that even when you have recovered sufficiently to return to work, the cover remains in place in case you have a recurrence of your previous disability, or even suffer a brand new disability. Cover typically remains in place until age 65 or even 70 depending on the options you choose on your policy.
It is also important to note that becoming only partially unable to work or returning to work on a partial basis following an illness or injury will also see your policy provide a partial disability benefit in order to help bridge the gap between your part-time and pre-disability income.
Effectively, the income protection provided is primarily designed to give financial assistance for any temporary disabilities that might arise over a working life-time, whilst also offering longer term assistance in the rare event that a disability causes someone to be so disabled that they cannot ever return to work.
Assumptions around the likelihood of a client suffering from short or long term disabilities have traditionally been sourced from health authority statistics detailing incidence rates and durations for most causes of disability.
This should mean that disability income protection products are relatively easy to price and claims experience should be relatively predictable – right?
You would think so but that isn’t quite what has happened. Interestingly, incidence rates in the insured population are mostly in-line with the statistics for the general population when it comes to most disorders, but not all.
For example, the incidence of mental health conditions such as depression and anxiety, as well as the incidence of chronic disorders such as chronic fatigue and chronic pain, are markedly higher in the insured population than in the general population.
In addition, the average duration of disability for insured lives are also often quite a lot longer than would be expected based on general population statistics. Quite often this arises when the original disability becomes elongated due to the development of subsequent co-morbidities such as mental health or chronic fatigue or pain disorders.
If we wanted to be flippant we could surmise from this information that disability income insurance makes people sicker for longer – that would be bad!
But if we flipped that on its head we could also surmise that disability income protection products allow people who are genuinely too sick or injured to work to take enough time off work to properly recover, rather than having to rush back to work following a disability, or worse, having to continue to work throughout a disability.
In other words insurance allows people suffering from poor health to get better properly. This is definitely the good!
A third way of looking at it could be that the mere existence of an insurance policy provides a perceived funding mechanism for a change of lifestyle for clients who no longer wish to work, or for claimants who no longer wish to return to work following a period of genuine disability.
In other words insurance can tempt people who aren’t sick, or are no longer sick, to opt out of work – i.e. the ugly!
Clearly these polar opposite scenarios have completely different impacts on claims experience and therefore on product design, underwriting practices, claims processes and pricing for insurers.
If the higher incidence rates and longer claims durations which exist for insured lives, ultimately lead to clients who recover fully and therefore remain healthy for longer following their eventual return to work, then insurers can price effectively for that risk and the product is providing the protection it was designed for.
However, if higher incidence rates and longer claims durations are as a result of healthy clients using insurance policies as the way to fund their chosen alternative lifestyle, then returning to work is clearly never going to be something they will work towards.
Income protection insurance is about financially supporting people against unexpected health events that interrupt their chosen lifestyles, not about funding an alternative lifestyle for those who no longer wish to return to work. If every client could simply decide when they would like to claim and for how long, disability income products simply could not exist.
Fortunately the vast majority of the claimants our wonderful claims team has had the pleasure of assisting over the years have suffered genuine health events which temporarily stopped them from working. They worked closely with their treatment providers to regain their health and when able, they happily return to their work and their usual lives. We understand perfectly when they tell us they hope they don’t have to ever talk to us again – we too hope they never need us again.
Disclaimer: This article is an except about Disability Income Protection from one of our insurance carriers and should not be considered as advice, this is a broad overview and opinion only, please contact us for specific advice.