Advisers must assist clients in selecting the most appropriate waiting periods.
Financial advisers must educate clients to ensure they choose the most appropriate waiting period when they take out income protection policies, according to life insurer Bidvest Life.
In 2022, the average time from lodging an income protection claim with the insurer until the first payment was 16.5 business days. Bidvest Life paid out half of the claims received within 10 business days.
In a presentation of its 2022 claims report, Bidvest Life’s chief product and pricing actuary, Nic Smit, said while it paid out 89% of all the income protection claims lodged in 2022, the leading cause of non-payment was clients trying to claim while they were still within their waiting period, which is the period they must be unable to work before an income protection claim will start to pay out.
The other top reasons were non-disclosure and claims which did not provide supporting medical evidence.
‘According to Bidvest Life’s 2022 claims report, 54% of income protection claims lasted less than 30 days. This means choosing a 30-day waiting period instead of a seven-day waiting period would cover you for less than half of the claim events covered by the seven-day waiting period.
Given that income protection is usually sold on either a seven- or 30-day waiting period, the choice between these two waiting periods is an important decision,’ Smit said.
The seven-day waiting period is available to self-employed, commission earners and contract workers, while the 14-day period is available to salaried earners. Event-based clients don’t have a general waiting period.
The top five reasons for income protection claims paid were minor infections; sick notes for procedures, conditions and injuries not elsewhere classified; mental illness; cancer; and hysterectomy. Bidvest Life said many policyholders may not know they can claim for such events.
“Interestingly, financial advisers were among the top occupations claiming comprehensive income protection.”
‘Income protection claims accounted for 58% of Bidvest Life’s payouts in 2022 – more than for the rest of its portfolio combined,’ it said.
Despite this, Smit said Bidvest Life was growing beyond income protection, enhancing its portfolio of products, and catering for a broader spectrum of life insurance benefits.
‘In 2022, Bidvest Life saw over 200 times more income protection claims lodged than disability lump sum claims – showing that most injuries and illnesses may impact your ability to work temporarily but won’t necessarily result in a claim on lump sum disability cover, which requires permanence.
‘This presents an opportunity for insurers and advisers to change the way that life insurance is perceived and sold, ensuring that clients protect themselves against their most likely risks.’
The insurer said that while critical illness benefit claims comprised 4% of the 2022 number of income protection claims, the former represented 22% of the total amount paid for income protection claims in the year, showing that critical illness claims are far more severe than ‘average’ claims.
A worrying statistic was that 64% of critical illness lump sum payments were for cancer – a trend Bidvest Life has noted over preceding years. Other highlights include that one in five critical illness lump sum claims that Bidvest Life paid out in 2022 were for conditions suffered by the life insureds’ children and nearly a quarter of death claims Bidvest Life paid as an income rather than a lump sum.
