This lecture is based on
- PRINCIPLES OF INSURANCE –
of the
Financial Planning Handbook 2019
(Managing editor: P Rabenowitz + published by
Lexis Nexis)
DISABILITY - AGENDA
• Definition of disability + impairment
• Features of Capital Disability
• Types of Capital Disability
• Income Protection
• Capital Disability vs Income Protection
• Other benefits linked to disability policies
• Maximum Disability Cover – LOA + ASISA
DISABILITY
Definition: Disability/Impairment
• Disability definition focused on employment in
SA:
• “A restriction or lack (resulting from an
impairment) of ability to perform an activity in
the manner considered normal for a human
being.”
• Impairment definition:
• “A loss or abnormality of psychological,
physiological or anatomical structure or
function.”
OR
• “Anyone with a long term or reoccurring,
physical or mental, impairment, that
substantially limits their access into, or existence
in society.”
DISABILITY
•Disability defined:
oIll-health or incapacity of the
insured
ocaused by an illness or
accident
oresulting in a disability
oprevents the insured from
performing the duties of
his/her regular employment
DISABILITY
• Disability defined (cont.):
o Insured suffers a loss of income
from own / similar / any
occupation
o Considering:
o his earning ability at inception of
the policy
o his standard of education
o his training
o his experience
DISABILITY
Features of Capital Disability
• Benefits are paid out as lump sum
• Some companies now pay out a % of the
cover depending on severity
• Contributions are not deductible from
taxable income
• Benefit pays out free of tax (both income
tax & CGT)
DISABILITY
• Accelerator Benefit:
– Linked to amount of life cover
– Payment of a claim reduces
amount of life cover
• Stand Alone Benefit:
• Payment of a claim has no
effect on amount of life cove
DISABILITY
Types of Capital Disability
•Capital Disability
•Permanent
•Lump sum
•Impairment
•Loss of body part
•Similar to Total Disability
DISABILITY
• Own Occupation (OOD):
• Own or similar Occupation (OD):
• Total Disability (TD) or Any Occupation:
DISABILITY
• Own Occupation (OOD):
– Measures the ability of the insured to
perform his/her own particular
occupation.
• Example:
– A brain surgeon that looses a finger
will be able to claim under this
definition as she is no longer able to
operate on her patients.
DISABILITY
• Own or similar Occupation (OD):
– Measures the ability of the insured to
perform any occupation for which
he/she is reasonably qualified, based
on his/her training, education or
experience.
• Example:
– A brain surgeon that looses a finger
will not be able to claim under this
definition as she may become a
lecturer or a consultant in the
pharmaceutical industry
DISABILITY
•Any Occupation (OD):
• Measures the ability of the client to
perform any occupation irrespective of
his/her training, education or
experience.
•Example:
• A brain surgeon must suffer a disability
event that renders him unable to
perform any occupation such as a
severe stroke leaving him paralysed
DISABILITY
Income Protection
•Benefit:
•Monthly income until such
time as:
claimant has recovered OR
policy expires (usually at
retirement) OR
death
DISABILITY
• Waiting period (none – 2 years)
• Premiums paid qualify for tax deduction
• Disability income fully taxable
DISABILITY
Capital Disability VS Income Protection
• Capital Disability :
– Lump sum amount – permanently disabled
– Common practice to decrease cover linearly
over the last 5 years
– Limited to retirement age, e.g. 60, 65 or 70
– Premiums not deductible & pay-out tax free
• Income Disability:
– Monthly Income – permanently or
temporarily disabled
– Premiums allowed in full as a deduction from
income under section 11(a) of the Income Tax
Act – claims paid fully taxable.
DISABILITY
Other benefits linked to disability
• Premium Waiver
– Pays premiums to maintain policy while
disabled
• Overhead Benefit
– Own business – to provide finance to run
business overhead expenses
– Overhead benefit normally limited to two
years
• Escalation in claim
– Often standard
– Very important – make sure that it is selected
DISABILITY
• Codes on Disability Benefits
• Previously the LOA Code on Disability
regulated the amount of disability cover that
a person was allowed to take out
• ASISA ([Link]) is the association
that currently determines standards i.r.o.
insurance matters, including disability cover.
• They recommend that a disability payment
should not pay out more than an amount
equal to 75% of a person’s current
occupational income – including disability
claims from all insurers with whom the
insured has cover.
DREAD DISEASE - AGENDA
• Introduction
• Types of dread diseases
• Principles of dread diseases Insurance
• Underwriting
• Exclusions
• Claims Assessments
• Stats
• Case Studies
DREAD DISEASE
Introduction to Dread Diseases
• First developed in 1985 in SA by Dr.
Marius Barnard and an actuary, Peter
Davies.
• Introduced in other parts of the world
afterwards – UK, Australia, etc.
• Pays out a lump sum when a life insured
is diagnosed with a specified dread
disease.
DREAD DISEASE
What is a dread disease?
It’s an illness, or disorder, that significantly
affects a person’s lifestyle
DREAD DISEASE
What is a dread disease benefit?
It is a lump sum benefit paid out when the
insured person contracts or suffers a dread
disease event.
DREAD DISEASE
• Types of Dread Diseases
• Initially the following
diseases were covered:
–Heart attacks
–Cancer
–Stroke
–Paralysis
–Blindness
DREAD DISEASE
•The list has been extended and many
more conditions are now covered, for
example:
• Coronary artery (bypass) surgery
• Kidney Failure
• Paraplegia
• Major organ transplantation
•Every insurance company has own
list of dread diseases that are
covered.
DREAD DISEASE
• Dread Disease Principle
• Each insurer determines own limits for the
amount of cover per life insured / condition
• Benefit pays in the form of a lump sum
• Available as standalone or accelerator
benefits
• Expensive, but claims are paid much quicker
than disability claims.
• Also known as critical illness / serious illness
/ trauma cover
DREAD DISEASE
Dread Disease Cover vs.
Medical Aid Benefits
• Dread disease:
– Amount of cover never related to medical
expenses – equal to sum insured or % thereof
• Medical aid:
– Amounts paid based on real medical
expenses
• Dread disease:
– Claims paid directly to the life insured
• Medical aid:
• Claims paid to a medical practitioner or to member
DREAD DISEASE
• Dread Disease Cover vs.
Medical Aid Benefits
• Dread disease:
– Falls under the insurance
company’s health license
– If dread disease products are
similar to medical scheme
benefits, then the insurance
company must register as a
medical scheme under the
Medical Schemes Act
DREAD DISEASE
Dread Diseases Principles
• Clear classification of severity is
important for consideration of a
claim, e.g.
“The death of a portion of the heart
muscle as a result of inadequate
blood supply as evidenced by an
episode of typical chest pain, new
electrocardiographic changes and
by the elevation of cardiac enzymes.
The evidence must be consistent
with the diagnosis of heart attack”
DREAD DISEASE
Underwriting
• Detailed medical history + questions
• Family history
• Lifestyle of the applicant
• Non-disclosure
DREAD DISEASE
Exclusions
•Contingency happened as a
result of:
•being under influence of drugs /
alcohol or contravening the law
•self inflicted injuries
•taking part in dangerous hobbies
•war, terrorist attack, riots,
rebellion, etc.
DREAD DISEASE
Exclusions
• As specified in policy contract
• Suicide within x number of years from
policy inception
• Failure to disclose all information
DREAD DISEASE
• Insurer guarantees no premium increases
during specified terms
• Life insured may select annual increase of
premiums (e.g. CPI)
DREAD DISEASE
Claims Assessment
• Based on policy conditions
• Waiting periods
• Whole Person Impairment criteria
(qualify for different tiers depending on
the severity of claim)
DREAD DISEASE
The need for dread disease cover
• Expenses to provide for:
– Shortened life expectancy / remaining
number of working years reprioritise
your life - scaling down on business
activities, taking more holidays with your
family, and improving your quality of life.
– Additional expenses when hospitalised,
e.g. care of kids, transport, homecare
duties, etc.
– Travel expenses for treatment in major
centres, or for relatives to visit you in your
hour of need.