I’ve had an option around short-term disability covers that I have commented on in a number of places. Basically, two and five year benefit terms should only be advised where the time to retirement is short and restructured to account for budget constraints due to clients' ages.
I get the budget constraint on taking long-term cover at full cover is expensive, by the same token, short-term benefits leave people way short on support and options when it becomes long-term.
The balance to consider is: How much cover can you shoehorn into a to age 65 or 70 benefit (should always be to age 70) veersus a full monthly benefit for two or five years?
The reality is that a 30% reduction in monthly benefit amount on a long-term product is worth more than the full monthly benefit for five years.
* A point to note as to why age 70 should be used aside from the obvious, some providers will not allow the movement from a to age 65 benefit to a 2 or 5 year benefit later on when this is typically driven by age and premiums, because the 2 & 5 year benefits have to age 70 contract terms.
This is where my story starts; while this relates to a Fidelity Life claim, checking with the others, it applies equally across the board. I’ll say upfront, I’ve been caught on the hop with this too, as I have never managed a co-paid two or five year benefit with ACC that is TPD own occupation as the outcome.
I have a client who came to me with an existing cover and had an injury event just as we started the review process. So I didn’t put the original cover in place, and we didn’t have the opportunity to make changes.
About four and a half years ago, Jim had an injury that put him off work. The injury is severe enough that he’s not returning to his occupation.
Ok, so we start the claim, at the time waiver is being paid, and 80% of earnings from ACC fully offsets any disability response (PAYE indemnity for five years with a 13-week wait).
So we take an approach: We’ll take the waiver but not claim the income benefit, as it will be offset. We’ll keep that for later when ACC decides he can do something else and kicks him off the claim.
We also had his TPD cover respond and pay in the middle of all of this. (Not a significant sum, but paid nonetheless)
Four and a half years later, we’re at the point of ACC ending their claim and heading back to Jim’s insurer. We asked for the IP benefit to start picking up as ACC’s support is removed.
We find out that the insurer is not going to start the five years from now, but they have had the clock running since the initial injury.
So the client will only receive six months of support!
Umm, what?
Now I appreciate that the clock should be running for a claim where ACC is paying and the insurer is paying a top-up, but that isn’t the situation here.
Which leaves me thinking, this is patently unfair. The client has paid for a five year benefit, and the insurer gets to avoid four and a half years of it because ACC was paying, and 100% offset is still considered a claim.
I would be making a hell of a lot more noise if this were isolated to just one insurer, but this is an industry-wide issue. Which needs to change.
When I think about unreasonable contract terms, this is one of those situations.
It is also one of those situations where people outside looking in will see this as more of what they expect; insurers taking clients’ money and not paying when expected to.
At this point, we are working through the complaints process to highlight how unfair and unreasonable this is.
At the same time, between the policy wording and the industry approach, that may be flogging a dead horse, too.
Given the initial circumstances, there isn’t much I can do here. And couldn’t have done anything different.
However, we do have a couple of things within the policy we can ask for, but Fidelity Life appear to be taking the road of minimising their costs rather than looking after our mutual client.
The first is rehab benefits. ACC is withdrawing support, but Jim’s clinicians have requested further treatment that is expected to help manage some of the ongoing pain and nerve sensation.
The other is assisting Jim in retraining for an occupation he can meaningfully engage with, rather than the menial jobs suggested by ACC.
The difference in expectations here is between own occupation and any occupation; ACC doesn’t care where he goes to work, so long as he’s working.
People pay for insurance on the basis that they will be looked after, and if they can’t return to their own occupation, they will be supported with retraining and assistance to return to work in a different occupation.
Even more important when you have a limited benefit with two or five year payment terms.
From where I sit, the plan looked like this:
- We had the TPD line drawn; there was no returning to Jim’s original occupation.
- Once all treatment avenues were completed, it was expected that ACC would kick Jim off into any occupation, and he would then have the support of his Fidelity Life cover for up to five years.
- This would then allow Jim to focus on where to go next with retraining and a reasonable expectation of returning to work in a meaningful way.
But no, Fidelity Life have decided it’s more commercially reasonable for them to refuse further rehabilitation and retraining and leave Jim with a long walk of a very short pier.
I might be getting a bit cynical in my advancing years, but this isn’t what I expect from an insurance company that holds itself out as looking after its policyholders. Frankly, given the circumstances, I feel it’s a little ruthless.
The unique set of circumstances, benefit limited or not, Fidelity Life has the opportunity to help Jim head into a new chapter of life with hope and a level of dignity, given what he has gone through.
But no, that’s not what this looks like, and it seriously questions the message we hear from insurers. For Fidelity Life, this might be legally right, but it’s not morally or ethically what we expect from insurance cover that clients have paid premiums for over many years.
For advisers, this is a timely reminder that taking the easy answer of advising two or five year benefit terms rather than the harder discussion of reduced monthly benefits for longer-term cover could leave you exposed to complaints later.
Unlike many of the examples discussed on the site, this is a real-world case with real-world implications.
The only possible saving grace here is the disability. While bad enough, Jim is not able to continue in his usual occupation; there are other employment options available.
But, it’s not the direction Jim wants to go, or be facing, at this time of life either.
Insurers need to do better. The new rules are about what is morally and ethically expected, not just what they can get away with legally.
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