Beware the Bells and Whistles, Cover Magazine, January 2013

Brad Toerien, CEO of FMI, Income Protection Specialists, looks at eight current critical issues in disability cover.

The most important thing about disability cover is making sure that income protection means a client’s income is truly protected in the event of a disability.>

An old habit in disability cover is for advisers to default to a lump sum Capital Disability benefit for permanent disability cover. In order to ensure future income and the ability to make big lifestyle changes, permanent disability cover should be made up of a combination of Capital Disability (one lump sum pay-out) and Permanent Income Protection (which pays out monthly benefits). Lump sums are seductive in theory but, more often than not, leave clients short-changed.

A new bad habit is for advisers to recommend a more ‘comprehensive’ policy which spans a range of outcomes (e.g. impairment, dread disease, and retrenchment cover) but ultimately covers none satisfactorily. The bells and whistles of a seemingly all-encompassing cover detract from the core purpose of ensuring that, in the event of a disability which prevents a policyholder from earning income, there is a complete and inflation-adjusted income stream until retirement age in the case of a permanent disability or until the policyholder returns to work in the case of a temporary disability.

Clients are far more likely to need Temporary Income Protection than Permanent Income Protection and few appreciate just how disastrous a temporary disruption to cash flow can be for them or their businesses. Temporary Income Protection should be a compulsory part of any income protection policy.
Complexity is one of the biggest problems with many income protection policies. The great benefit of single-purpose disability cover with FMI is that the pay-out criteria are clear and simple – if you cannot do your job, we will pay. With a more complex product line, the terms and conditions on pay-outs run for page after page, and therefore they do not provide true security to the client.

Disability is more than just a physical thing – depression and stress-related illnesses can just as easily make work impossible.  Contemporary policies should cover such eventualities with appropriate conditions and medical assessments.

The pay-out is what really matters to clients. If pay-out processes aren’t simple, quick, and transparent not only does the client take great strain, the adviser’s credibility suffers and their workload increases.  Best practice companies have benchmarks at every step in the process and clearly communicate what is happening.

In the future, the industry will have to find ways to expand coverage into professions and types of risk which are currently not insured.  Individual creative workers like actors, writers, and musicians are traditionally excluded from disability cover because of uncertain definitions of their working lives, as are professional sportsmen and those with hazardous occupations because of the levels of risk. Sufferers of specific conditions like diabetes also struggle to get cover and we need to address that while also keeping pace with changes in modern medical diagnoses.

We are looking to create more comprehensive products which do not compromise our core goals of ensuring the client is both properly protected and also gets the swift, unconditional pay-out they deserve in the event of a disability.