Pretoria, Gauteng -- (SBWIRE) -- 11/12/2012 -- There are two main types of disability assurance:
- Traditional disability assurance, which is based on whether or not you are physically able to work; and
- Functional impairment assurance, which pays a lump-sum benefit for a predefined event such as an illness or an accident that limits your ability to carry out physical functions.
Traditional disability assurance is paid based on your ability to work or not. Impairment assurance is based only on functional impairment.
Many financial advisors suggest you have disability cover based on your occupation, as well as a level of functional impairment cover.
Much of the contention over traditional occupational disability assurance (or job-defined assurance) concerns what is meant by “unable to work”. The definitions differ from policy to policy.
Occupational disability assurance is divided into three options:
- Own occupation.
You are paid out if you can no longer perform the job you are currently doing. This option is normally restricted to professionals.
- Own or similar reasonable occupation.
You qualify if you can no longer perform your current job or a similar job that you could reasonably be expected to do, given your ability to perform the required tasks.
With this option, you may have to take on a job that pays less or one that has fewer promotion opportunities.
The life assurer must be reasonable in deciding whether you must perform a similar job, taking into account your experience, training, employment and personal history.
- Any occupation.
You are paid out only if you can do no job at all. If you have this type of cover and are disabled but are still capable of working, you will be forced to take up any job, even a menial one that pays relatively little.
However, as with “own or similar” cover, the principle of what is reasonable must apply. You pay higher premiums for “own occupation” cover than for “similar occupation” cover, and higher premiums for “similar occupation” cover than “any occupation” cover.
Functional Impairment Insurance
The criteria for the payment of benefits are based on the level of illness or impairment, defined in medical terms.
Whether or not you can work is not a deciding factor.
Functional impairment benefits are tiered; taking into account the importance of the part of your body you can no longer use in relation to the rest of your body.
To measure functional impairment, account is taken of your ability to perform everyday activities.
A functional impairment policy will pay you a percentage of the amount for which you are insured for a particular condition, depending on its severity. So if you lost an arm in an accident, you would be paid less than if you lost both arms and both legs.
Schalk Malan, executive director: product as life assurer at BrightRock, says it is not a matter of choosing between job-defined disability and impairment assurance. You need a combination of both. He says not all impairments will result in an inability to work with a consequent loss of income.
You may be disappointed at the claims stage if you hope an impairment product will meet a potential lost income need.
Impairment products are list-base products, meaning that if a particular impairment suffered is not on the list of impairments in the contract, then you will not be paid.
Another issue to consider is the “matching principle”. Stand-alone impairment products only pay once-off lump sums whereas “income” disability products may pay regular streams of cash or lump sums.
And these lump sums may not be well matched with your need to compensate for a loss of income received regularly over a long period.
You need to match your disability assurance needs to the number of years you will support yourself (and dependants) without a job and your future income needs.
BrightRock was started with the goal of creating insurance products that truly meets consumers’ and financial advisers’ needs. It offers truly individualised life insurance cover that’s built around your specific needs at the outset, and is specially designed to change with you as your needs change. And because BrightRock’s cover is flexible and changes appropriately when your needs change, it’s more efficient. This means both your cover and your premiums remain relevant, and more affordable, throughout your life. BrightRock (Pty) Ltd is an authorised financial services provider, underwritten by Lombard Life Ltd. For more information please visit us at, www.brightrock.co.za.