Find out more about how critical illness and disability insurance are becoming increasingly complex from life insurance companies. Get advice on how to understand your life insurance policy and how to overcome potential pitfalls by being fully compliant with the life insurance policy’s requirements.

Pretoria, Sout Africa -- (SBWire) -- 12/17/2012 --“Critical illness and disability insurance are increasingly complex and policy holders are sometimes left with less money than they thought after a debilitating event. We ask how brokers should be advising their clients to make sure they get the most out of their cover.

People are living longer, partly because of the medical improvements in the treatment of heart attacks and cancers. This means that severe illness and disability cover have never been more important,” says Ferdi Booysen, Greenlight product marketing manager at Old Mutual. Critical illness and disability insurance benefits provide clients with the peace of mind that, if disaster strikes, their family’s financial future is secure.

That being said, there are cases where policyholders are making legitimate claims, but are not receiving the amount of cover they are expecting. “This is where a financial advisor plays a vital role. The advisor will assist the client in determining the amount of cover the client requires. In so doing, the advisor paints a realistic expectation for the client as to the pay-out levels at claims stage. Consideration should be given to the benefit escalations to increase the sum insured over time as well,” says Andre Froneman, product specialist at Altrisk. In times of trauma or grief, the last thing your clients or families need is to have to deal with the added stress of having a disability or critical illness claim contested or denied. To ensure a smooth claims process and for the cover to remain valid, the policyholders must be fully aware of, and comply with, all requirements in the policy. In general this is not difficult to achieve, but there are a few pitfalls.

Do not withhold information

It is general knowledge that disclosing certain information on an insurance application could lead to increased premiums or exclusions on the policy. This creates a dangerous temptation to withhold or give misleading information to the insurer to secure the best deal. Clients should be warned against falling into this trap; it is a direct violation of the policy agreement and will result in claims being rejected. Clients should understand that any short-term gains from reduced premiums will be nothing compared to the cost of a rejected claim.

Policy holders must disclose any previous medical conditions when applying for disability and critical illness cover. If they have had cancer before and it returns, the insurer will be well within their rights to refuse a claim if the client did not inform them of the previous case.

Not having enough cover

There are many reasons clients may not have sufficient cover in case of critical illness, some are self-inflicted by balancing the cost of insurance against something that provides instant gratification. “Adequate cover can be expensive and the perceived value is low. Buying personal cover is usually weighed up against an immediate gratification product, like purchasing a new iPad or new car. Young people often believe that they are invincible, until they experience a change in their own health, when it may be too late or too expensive to buy cover,” says Booysen. In this instance it is imperative for brokers to impress on their clients just how devastating disability and critical illness can be without insurance cover.

Existing poor health is another reason some policyholders may not be able to obtain enough cover. “Some customers could already be in poor health when they apply for insurance. While life cover may be granted either at a standard or a higher premium, it is possible that the severe illness or disability cover will be declined. This is because some impairments or conditions carry a higher risk of causing a disability or a severe illness, without necessarily affecting life expectancy,” explains Booysen. For example, clients with high blood pressure and cholesterol have an increased risk of having a stroke, which could severely disable them without causing death.

It is important to consider what critical illnesses and potential disability the client is most at risk for, and factor in the real cost of those events when considering the level of cover. “It is important that clients understand what they’re buying so they can anticipate areas of shortfall in their cover and look at ways to make up these shortfalls, or plan for them to ensure their needs are adequately addressed,” explains Sean Hanlon, executive director of BrightRock, which was launched in 2011 and operates under mandate from Lombard Life.

The point of disability and critical illness cover is to provide financial security for the policyholder’s family when they are suddenly unable to. This includes providing the financial means to help the policyholder adjust to life with a disability or after a serious illness, such as adapting their home for wheelchairs. Therefore, when deciding on an amount of cover, brokers should encourage their clients to draw up a budget to more accurately understand how much the family needs on a daily basis.

Timing out

Policy documents are important and warrant being kept in a safe place, but if the policyholder’s family is not aware of the cover or where the documents are being kept, there is a chance they will not be able to make a claim, especially if the policyholder is incapacitated.

Many disability and life insurance policies require that the client inform the insurer of an incident within a specified time. Therefore, if the policyholder is incapacitated and their family is unaware that the cover exists or don’t know where the documents are kept, the timeline could expire and the claim denied.

Beneficiary changes

It is not just the policyholder’s details that need to be corrected and up to date; the insurer must be made aware of any changes to information regarding any nominated beneficiaries as well. The insurer can only be responsible for what it knows about. Therefore if one of your clients has a child and wants cover set aside for them, they will need to adjust their beneficiary documents.

Claim information

When one of your clients makes a claim, they must make sure that they provide as much accurate information and documentation as they are able. Not only will incomplete or incorrect information put the claim at risk, it will also delay a legitimate claim being paid, which may put their family at financial risk.

Taking on additional risk

This goes hand in hand with withholding information on an application. Policyholders must resist the urge to not inform their insurer that they have taken on additional risk. If one of your clients takes up smoking, their insurance premiums will be higher because they are at a higher risk of getting sick or dying. If they fail to inform their insurance company of such a change and illness occurs because of that change, their family will be left with nothing but big bills.

Misunderstanding policy

Brokers should make their clients aware that there will be circumstances under which a policy will not pay out, even if full disclosure has been made with the insurer. If there are any exclusions on the policy, it is imperative that the intermediary goes over these with their client and makes sure they fully understand what they are and are not covered for. Typical exclusions relate to alcohol consumption, smoking, drug usage, suicide and violation of the laws of the land.

“Although flexibility and comprehensiveness of benefits is crucial for customers, the reality is that both of these come at the cost of benefits being more difficult to understand fully. Simply put, products have become more complex over the last few years. Without the help of a qualified financial adviser, customers may very well end up with benefits that do not behave the way they expected them to. Not only can a financial advisor explain the benefits, terms and conditions in simple terms to customer, but they can also ensure that the benefits purchased are relevant to the customer’s specific risk needs,” says Ryan Switala, head of risk product development at Liberty Life.

“Often, a lack of understanding of the purpose of the cover is to blame. Current product structures do make it very clear for which events the cover is intended, but clients may not understand the underlying financial needs involved. For example, clients may imagine that a lump-sum capital disability pay out of R5 million is more than enough if they’ve not understood that they’ll not only need that lump-sum to pay off their bond, but also to provide them with an income for the rest of their life to take care of all their expenses from bit ticket items like their medical aid contributions and their children’s education to everyday concerns like groceries, transport costs, utility bills and the like,” adds Hanlon

Fight the good fight

Brokers should make absolutely sure that if a claim is declined that it is for valid and legal reasons, and that everything has been done correctly from the client’s side. If it does happen that the broker or the client believes that they have a strong claim and the insurer continually refuses to pay out, it might be worth taking the claim to the ombudsman.

Insurance brokers exist to help clients with the intricacies of insurance. Critical illness and disability insurance are particularly complex and sensitive policies, as they exist to protect the client’s way of life. It is imperative, therefore, that brokers go through all critical illness and disability policies with their clients to be certain that everything the client wants and expects from the cover is part of the policy.

It is equally important for brokers to impress on their clients exactly how important these types of insurance are. “We believe the most important discussion is around the purpose of the cover and the underlying financial needs the clients are insuring. If clients grasp what their cover is for, how it will grow and how it will behave over time, they’re bound to be more receptive to the financial adviser’s advice.

This will shift the discussion from one that typically lends to centre, from the client’s side at least, purely on the price of cover to one that focuses on the value of cover,” concludes Hanlon.

About BrightRock
BrightRock was started with the goal of creating insurance products that truly meets consumers’ and financial advisers’ needs. It offers truly individualised life insurance cover that’s built around your specific needs at the outset, and is specially designed to change with you as your needs change. And because BrightRock’s cover is flexible and changes appropriately when your needs change, it’s more efficient. This means both your cover and your premiums remain relevant, and more affordable, throughout your life. BrightRock (Pty) Ltd is an authorised financial services provider, underwritten by Lombard Life Ltd.