WHAT YOU SHOULD CONSIDER WHEN
PURCHASING AN INSURANCE PRODUCT
There are a lot of products with numerous benefits and the cost will vary with the type, and scope or range of cover offered in these products. Some products, also known as policies, may have many benefits, and cost more, while others may have less cover and obviously cost less. With some insurance products mentioned below, it can be difficult to evaluate the differences and seeking a qualified financial adviser’s help before you purchase can spare you disappointment when it comes to whether you can claim or not. To help you, here is a list of some of the more important factors that you may want to consider when deciding on your policy:
TOTAL AND PERMANENT DISABILITY
• How long can the product or policy be continued? Know when your product ceases, e.g. at a specific age, or after a specified number of years. Also, does your insurance company (the insurer) allow you the option to continue your cover after the cover ceases without having to update your current health status? If it does, will the premiums increase?
• Will your policy pay out if you become terminally ill and if so, how early? Being terminally ill means you have been offered or given treatment that either no longer helps, or the situation is so severe that no further treatment will extend your life. o Ask for an estimate of what you might pay in premiums over the next 10 years. You may like to compare this with other insurers.
• Understand the limitations (Exclusions) of your policy and what it won’t be paid out for. For example, missed premium payments, no payment within the first 2 or 3 years, your residency status, a specific health condition like HIV, suicide, any countries where there is war or terrorism, etc.
• How does the insurer define “Total Disablement” as this is probably the most important issue with this type of insurance? Some policies talk about being unable to work in any occupation, while others say usual occupation. Also, how do they determine when you are disabled, e.g. is it that you are unable to work more than 10 hours a week, or some other criteria?
• You can only insure up to 75% of your income and if you need to claim due to a sickness or injury, you will be asked for your income details over the last 36 months. This figure, called the Pre-Disability Income, is the average income over this time, or the best 12 months earnings over
• Some insurers offer ‘Agreed Value or ‘Loss of Earnings’ policies. What this means is you don’t need to prove your income when you claim, as the insurer has already agreed on the amount (the sum insured) at the time you applied. With an Indemnity or Loss of Earnings policy, they will calculate your Pre-Disability Income, as mentioned above.
• Your Post Disability Income is any income earned, or received, after you have become disabled. This typically includes ACC and other benefits you receive, or to which you are entitled including, but not limited to, superannuation schemes, interest earned, etc.
• Having made a successful claim against your disability income policy, you will want to know if you get a reduced benefit when you feel well enough to take on part-time work. See if there is any Partial Disability clause.
• You can choose when you want to receive the policy benefit by selecting from a range of Waiting or No Pay Periods, e.g. 14, 30, 60, 90 days or even 12 months. This assists you to manage what you can afford. If you have good savings reserves, lengthy sick leave availability, or a working spouse, decide how long you can manage on existing financial resources and select what suits your circumstances.
• Similarly, you may want to reduce your premium by electing a shorter Benefit Period. Options available can be 1 or 2 years, 5 years, or to age 60, 65 or 70. Premiums will increase each year as you get older, although a few insurers offer Level Premium plans.
• Can your policy be suspended and if so for how long? Reasons to suspend the policy may be for extended leave from work including, but not limited to parental leave, unemployment, or to take a sabbatical.
• Are there any rehabilitation and/or retraining benefits that will assist in your disability recovery, and how long does this last?
• Knowing what your product restrictions are is obviously important. Is there any Pre- existing condition clause? This means that any personal illness or injury condition that was known and existed prior to signing of an insurance application is not covered by the policy, unless it has been disclosed and approved at the time of application.
• Also, are claims ruled out as a result of mental illness, pregnancy, deliberate or Criminal Act, war or terrorism, HIV, consumption of alcohol or illegal drug use, etc.?
• Is there a stand down period following total and permanent disability before the policy will be
paid out? Some policies do not require a stand down period for certain medical or physical conditions, e.g. dementia, multiple sclerosis, quadriplegia, etc.
• This product has two different and important definitions or classifications: i. “Own Occupation” – this talks about being unable to do your own, or usual, occupation. ii. “Any Occupation” – this says you cannot work in any occupation that is reasonably suited to your education, training or experience, and you are unlikely to ever engage in any occupation again.
• What other conditions might this type of policy pay out on? These could be the loss of sight or both limbs, cognitive impairment (brain disorder), or being unable to perform Activities of Daily Living. Known commonly as ADLs, this means activities that are necessary for daily care of oneself and independent community living.
• There will be Exclusions in this product so you should be aware of these. They can include, but are not limited to, a deliberate or Criminal Act, self-inflicted injury, any non-prescribed drugs or misuse of prescribed drugs, war or civil commotion, etc.
• Some insurers cover as many as 40 “trauma” conditions (also referred to Living Benefits, Critical Illness, etc.) in their policies, but there are others who offer cancer- only policies for those who can’t afford, or don’t want to be covered for all the rest.
• In general terms, nearly 90% of trauma claims involve cancer, heart attack and stroke, so these product wording definitions are regarded as the most important.
• Does your family medical history point to signs of genetic predisposition to any conditions? If so, you may want to pay particular attention to the policy definition of that condition.
• With this type of cover, the definitions in some insurance policies may favour females, while other policies may favour males.
• What period of time must someone survive after taking out the policy before a trauma claim is considered? Is it 14 or 30 days you must remain alive?
• Will your policy offer Partial Benefits? For medical procedures and conditions that are not regarded as very serious, some policies will pay out a percentage of the sum you are insured for. Examples are: angioplasty, early stage cancer and the loss of hearing or a limb.
• What other policy features are offered or come as options, e.g. automatic cover for your children covering all or limited conditions, or is there an option for you to once have again (‘buy-back’) the cover that’s previously been paid out?
• What are the restrictive conditions and exclusions? These can include: insurer’s right to change the policy wordings; a driving accident involving an excess of blood alcohol; various hazardous activities; and any countries where there is war or terrorism, etc.
personal illness or injury condition that was known and existed prior to signing of an insurance application cannot be claimed on?
• Alternatively, do they fully scrutinise your medical past before deciding on what they cannot cover, based on what you have disclosed and/or from your medical records?
• What are the limitations for Surgical Hospitalisation, that is, general surgery, cardiac surgery,
oral surgery, etc? Some will cover as much as $200,000 per person per claim, others may limit
cover to $100,000 per operation and some will only pay up to 80% of certain procedures.
• Not all claims involve invasive surgery and today more and more treatments are performed by
non-surgical procedures. What are these limits and restrictions?
• What about being covered for Specialists’ consultations (like Oncologist, Obstetrician, Osteopath, etc.) and major diagnostic/imaging procedures (like Mammograms, Ultrasounds, CT and MRI scans, etc)? Are these costs regarded as being part of a surgical hospitalisation claim? If not, do you want cover for this as it will cost you an additional premium?
• There may be times when your spouse wants or needs to be with you for an out of town procedure. Is there cover for travel, including accommodation for a support person?
• Sometimes the surgery required can only be performed overseas, so is this treatment be funded under your policy?
• Because of the huge costs of some new drugs, these are commonly not on the PHARMAC List – this is the list of drugs not provided free within NZ. Will your policy refund the costs of those drugs not on this List?
• Similar to Trauma insurance, can your insurer automatically change the policy wording after you have received it? Some policy documents allow alterations to include new surgical and medical procedures. Premiums for these policies are likely to increase faster than those policies that cannot be changed.
• Can you control the cost of increasing premiums by agreeing to pay a defined amount (called an Excess) towards any claim. What are the choices available (e.g. $250, $500, $1,000, $5,000 or even $10,000) and what effect does this have on your premium?
• What types of policies can you overlook and why? What are your ‘must have’ policies and why? Also, if you cannot pay for the best policy, what are your ‘must have’ conditions to be covered?
• In New Zealand, there are two International Agencies that rate the insurers’ ability to pay claims, AM Best and Standards & Poors. What then is your intended insurer’s financial rating, or strength, as measured by these rating agencies? All insurers have a legal obligation to inform consumers of this information.