When a financial planner looks at your risk (life/disability/dread disease) needs, he or she is supposed to take your group risk cover into consideration when making recommendations and in effect assume that you are adequately covered. This can be a dangerous assumption and leave you or your family badly exposed when it comes to claim time.
Life cover itself is fairly uncomplicated. Clearly you either are dead or you aren’t. Ditto funeral cover. If you’re really unlucky and have been killed at the wheel of a car when you’re drunk or by hitting your head on the bottom of a fountain after a (not so hilarious) night out with the boys then some of the insurers might baulk, but on the whole, life cover is life cover, wherever you go and however you get it. Just make sure that it isn’t ‘accident cover’ only. That is a cheap and nasty subset of life cover that only pays out if you’re in an accident, not if you have heart attack or any other less spectacular exit plan.
Dread disease on Group Risk cover is less common, but where you do find it is usually a ‘severity based’ product paying out a percentage of (what is normally) only one year’s salary. In other words at stage one cancer, (when most cancers are detected) your payout will range from 0-5%-25%. Dread disease cover is an increasingly important part of medical risk cover (see my blog HERE) but is expensive and falls a way down on your list of priorities.
Group Disability cover is the biggest concern. Ninety percent of the group Disability cover, especially permanent disability cover, is appalling and quite frankly not worth the policy paper it is written on. Why? As per usual, it is in the small print. Do yourself a favour, ask for the full Group policy document before downgrading your personal cover in favour of group cover.
Look for wording like “…if, in the opinion of x provider” (what happened to objective international standards?).
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Are you getting what you think you are?
Just because you’ve taken out Life Insurance– Life, disability, funeral, income protection, dread disease cover etc – you’re okay jack – right? It can be a relief when we eventually take out some sort of risk insurance that has been nagging us forever. Once signed and delivered more often than not we forget about it. I’m not saying you need to keep obsessing about it, but apart from the annual review your advisor is obligated to do with you, make sure you really know what you’re getting.
Here are some questions you should be asking:
- Disclosure: Have you been completely honest in answering the questions? If not… could you get caught out? Let’s face it, we often forget stuff that happened years ago. That minor whiplash in a car accident or that rugby concussion. Once you remember, get hold of your advisor or provider and disclose it. If you don’t and have a back injury that triggers a disability claim, the providers will investigate. One of the biggest areas of non-disclosure is drug use, with good reason. The provider’s view any drug use, no matter how long ago, as high risk and it is can lead to outright exclusions. Unless you were either busted for drug use or went to rehab, it is obviously very difficult for the insurer to pick up. Occasionally it will appear in reduced liver function (as will excessive alcohol consumption).
- General exclusions. When you get your policy document don’t just check your cover, check the general exclusions. These differ from provider to provider but might include things like death or injury as a result of engaging in a criminal act or something unlawful, suicide/ self harm (2 year exclusion, but this may be extended to life-time). On the disability side some of these ‘general exclusions’ can be quite onerous with certain providers – for example for lower back injury or mental disorders (difficult to prove but make up a chunk of claims).
DISABILITY COVER – DECODING THE SMOKE AND MIRRORS
For anyone of working age, disability benefits or cover are not a nice to have, they are a ‘have to have’ – but make sure you’re not swallowing a sugar-coated bitter pill that is going to give you an ulcer down the line. It isn’t the easiest benefit to understand, and many providers don’t help with all sorts of acronyms, abbreviations and BS, so let’s do some decoding.
In the old days you used to get ‘capital disability’ cover, where you had to be so severely disabled as to be a few months away from death before you were paid out. If they could push you behind a desk, you ‘could work’. This shoddy cover gave the whole benefit a bad name, and fortunately things have improved a whole bunch – but be aware – these inferior products still lurk around in some of the older ‘group benefits’ provided by companies.
There are 2 types of disability benefits – lumpsum and income protection, each of which has its merits.
The risk of disability
Like many of my clients out there, I always used to think that disability cover was a ‘nice-to-have’ grudge purchase until I came into the industry and face to face with claims. I couldn’t be more wrong. After life cover for minor dependants, (spice can go out and get a job), it is actually top of the risk list. Somehow it’s okay to spend thousands on comprehensive cover on a car, but if you happen to be in that car that is ‘written off’ there is a good chance you will be in need of as much panel beating as the car! Okay, so maybe it’s politically incorrect to joke about this sort of thing, but it’s about time someone blew away the smoke and obfuscation (yes, I had to spellcheck that one) surrounding temporary and permanent disability.