Illustration: Colin Daniel Illustration: Colin Daniel
An income protection policy that includes cover for temporary disability is your best protection against the financial implications of disability, Dr Eric Starke, the senior medical adviser for Sanlam, told a recent conference for finan-cial advisers.
Lump-sum cover, which pays a benefit only once it has been confirmed that your disability is permanent, does not provide financial protection if your disability is temporary, Starke told the conference, which was organised by Glacier by Sanlam.
If you take out disability cover that pays a lump-sum benefit, you should take out additional cover for temporary disability, he says.
Disability cover pays out if you suffer from a debilitating disease or if you become disabled (functionally impaired) as the result of an accident.
Life assurers define functional impairment as a limitation on what you can do following an illness or injury, Starke says. An example of functional impairment is if, after a car accident, you are left with restricted movement of your arm.
The extent to which your functional impairment affects your ability to do your job determines whether or not you will enjoy an occupational disability benefit.
If, for example, you are an electrician and the shoulder injury leaves you unable to lift your arm, you are disabled for your occupation, but a secretary who has the same impairment can still do her job; she is not totally disabled, Starke says.
Occupational disability products pay a benefit as a lump sum or an ongoing income.
It is important to remember that you qualify for a lump-sum disability benefit only if you are permanently disabled – in other words, if you are not expected to recover from your disability, Starke says.
With lump-sum disability cover, you have the option to be covered for your regular occupation only or for your regular occupation and any “reasonable alternative” occupation.
On an accidental disability policy you are paid out a lump sum only if you are permanently unable to work in any job.
When a life assurer considers whether you can work in a reasonable alternative occupation, it must consider your age, experience, qualifications and your income. You can’t be expected to work in an alternative occupation if your income will drop by more than about 25 percent.
To qualify for accidental disability benefits, you must be totally and permanently disabled as a result of an accident or injury, not a medical condition. To be totally disabled you must be unable to work in your own or any similar job.
There are three types of disability cover that pay an income:
* Temporary disability, which pays an income benefit for a maximum of 24 months per condition;
* Extended disability, which covers you up to a certain age (for example, when you retire) or for your entire life; and
* Sickness benefit, where you can decide on a maximum payment per condition for three, six, 12 or 24 months.
Disability income cover has waiting periods, and the shorter the waiting period you choose, the more expensive the product.
It is possible to make multiple claims on a temporary income disability and a sickness benefit policy, but the benefit for each condition will be paid only over the maximum term.
Starke says when considering cover, you must take into account:
* Your occupation.
* Whether or not you are self-employed.
* The premiums you can afford.
* Whether your finances will permit you to support yourself for three months or longer while you wait for a lump-sum disability claim to pay out. You should also consider whether or not you would be able to sustain yourself during the waiting period on an income protection policy.
* Your age. The younger you are, the higher your debts and the greater your need to protect your income.
To qualify for a lump-sum disability benefit, you must prove that your disability is permanent, which can be a high hurdle to clear, Starke says. Permanent disability means there has been no substantial improvement in your condition despite reasonable, optimal treatment. The success rate and the risks of such treatments will be taken into consideration, he says.
To qualify for an income protection benefit, you have to have total or partial disability and show a loss of income as a result of the disability. Permanence is not a consideration, so this makes it an easier hurdle to clear than when you want to qualify for a lump-sum benefit, Starke says.
To qualify for a sickness benefit, you only need to be booked off sick by a doctor and don’t need to prove loss of income or permanence, so this too is easier to claim for than a lump sum benefit, he says.
Advances in medical technology mean there is less chance that your disability will be permanent than was the case in the past.
Also bear in mind the way the world is changing, Starke says. The incidence of cancer is escalating: the Cancer Association of South Africa predicts it will double in the next 10 years, with one in six people being diagnosed with cancer in their lifetimes.
However, as a result of early diagnosis and better treatment, fewer people are permanently incapacitated by cancer, Starke says.
LIFE HAPPENS: ARE YOU COVERED?
Depending on your condition, the permanence requirement for a lump-sum disability benefit could leave you without cover for a substantial period.
As long as there are signs that your condition might improve, a life assurer cannot make a decision on the permanence of your disability.
The chance of becoming temporarily disabled is far greater than the chance of becoming permanently disabled, Dr Eric Starke, the senior medical adviser for Sanlam, says. He provides the following case studies:
* Melanoma: A 46-year-old man diagnosed with metastatic malignant melanoma was started on chemotherapy and radiotherapy. A follow-up evaluation was scheduled to be done after six months of treatment. Permanency could not be established until then. His income is not protected for the six months that he has treatment because he has lump-sum disability cover only.
* Retinal detachment: A 40-year-old psychologist has treatment and has to keep his head in a certain position for three months, so he can’t go back to work. His income protector policy pays out until he goes back to work.
* Rheumatoid arthritis: A 42-year-old air-conditioning technician is temporarily disabled while on a new treatment regime, but his doctor expects him to return to work in future. A decision on whether to pay out his lump-sum disability is deferred until permanence can be determined. He has no cover for temporary disability.
* Cancer: A 38-year-old occupational therapist is diagnosed with cancer of the lower part of the bowel. She claims on a sickness benefit. She also has lump-sum disability cover and an income protection policy. The sickness benefit pays a monthly income for the 10 months she is booked off work. A decision on the lump-sum disability benefit is deferred until permanence can be established.
* Stroke: A 57-year-old accountant has a stroke and is severely impaired. He has temporary income protection and a lump-sum disability policy and claims on both. His doctor says recovery is unpredictable, so a decision on the lump-sum benefit is deferred for six months to see if permanence can be established. The temporary income benefit pays out.