Following on from previous post Basics of Income Protection, this article will cover the differences in definitions of income protection. As previously mentioned with insurance companies the devil is in the detail. Important to note the definitions in your policy document is the wording that will be used when assessing your claim.
Own or own/similar occupation definition these two phrases are often confusing and are very significant when considering the extent of your cover. Having an own/similar occupational definition as part of your cover is firstly a lot cheaper but it will open you up to some disability risks. It means you would have to be unable to perform your work duties and any duty similar to you current occupation. If you have the clause in your contract you should strongly reconsider changing it.
Own occupation means you are insured for your current occupation, if you are unable to work in your current employment due to injury or illness you will qualify for a claim. Let’s use an example to demonstrate what this means.
John is a surgeon, and has income protection with the own/similar definition. He falls off a ladder and fractures his wrist causing permanent damage leaving him unable to continue operating, he submits a claim. His claim will likely be declined as he can still fulfill a similar occupation as a general practitioner or a lecturer. Had he have had the own occupation definition he would qualify for a claim as he is no longer able to perform his current occupation.
Another important definition difference is the wording such as permanent disability versus extended disability. In terms of the “permanent disability” claim definition often the definition will include the phrase “total and irreversible”. This means what it says you would have to prove that what happened to you is irreversible, another phrase that comes to mind in these type of documents is “no possibility of recovery”; only if these criteria are met shall you qualify for your claim.
Extended on the other hand implies the condition may still be temporary with a chance to recover over a longer duration. This definition is more likely to pay your disability claim. In the event of an injury that takes longer to recover such as a severe car accident the company with a definition including extended disability cover would continue to pay while the other with the permanent definition will cease to pay beyond the temporary duration of the benefit.
Like everything else in life goedkoop is deurkoop. The cheapest option is not always the best option, in some cases in order for assurers to cut costs they may impose stricter definitions which may decrease your likeness of a claim.
If you would like to consult with an advisor in our network to get a second opinion on your existing cover or to assess your income needs please contact us. Our network of advisors are all qualified and come highly recommended.
Disclaimer
All information provided in this article is provided for information purposes only and does not constitute a legal contract between the party delivering this document, the client and any other person or entity unless otherwise specified. Nothing contained herein is intended to be, or should be construed as advice, guidance or a recommendation.