Cover magazine – Feature

Author: Nic Smit, Chief Product Actuary

When it comes to income protection benefits, it’s important for clients to understand the nuances of waiting periods and how they affect their claims.

Income protection is a more complex benefit compared to other life insurance benefits – whether someone meets the definition of a claim event, how related claims are treated, and the exclusions applied can result in complicated situations at claim stage.

In our experience though, as one of the first insurers to offer income protection benefits for temporary disabilities in South Africa, the most important factor that impacts a claim outcome is the waiting period selected.

Defining the waiting period

Simply put, the waiting period is the time the life insured must be unable to perform their occupation due to an injury or illness before a claim is paid. The two most common waiting periods selected are seven days and 30 days.

For a seven-day waiting period, payment starts from day one, once the life insured has been unable to work for seven days, while the 30-day waiting period pays from day 31 onward. For

example, if the life insured was unable to work for 45 days, they would be paid for 45 days if they had selected the seven-day waiting period, but only for 15 days with a 30-day waiting period. If instead the life insured was unable to work for 21 days, they would be paid for 21 days on a seven-day waiting period but would be unable to claim on a 30-day waiting period.

What is often underappreciated when selecting a waiting period is that most periods of inability to work are shorter than you might expect. In 2023, 42% of the income protection claims that Bidvest Life paid on a seven-day waiting period were for periods of disability that were for 30 days or less. This means that 42% of the claims that were paid on a seven-day waiting period would not have resulted in a claim had the life insured selected a 30-day waiting period.

Contrary to popular belief, the most common reason for an income protection claim to not be paid isn’t due to non-disclosure or where the life insurer deems that the life insured is not disabled. In our experience, the most common reason for non-payment of a claim is that the period of inability to work is shorter than the selected waiting period.

This tells us two things – firstly, while income protection can be complex, the most important feature that policyholders need to focus on is the waiting period they’ve chosen.

Secondly, and probably more importantly, policyholders need to understand that even very short periods of inability to work (i.e. a month or less can still significantly impact their ability to cover monthly expenses.

Weighing up the options

So why not always select a seven-day waiting period? Given that this waiting period is the shortest, it’s also the most expensive, which leads many policyholders to opt for more affordable cover. Additionally, not everyone qualifies for a seven-day waiting period. Bidvest Life is proud to offer the seven-day waiting period to an extensive range of client profiles. This includes those who are self-employed, contract workers, commission earners and those who have a three-year degree or equivalent NQF level 7 education. For those who don’t qualify for cover on a seven-day waiting period, the 14-day waiting period provides improved cover compared with the more market-standard 30- day waiting period.

Understanding the mechanics

Lastly, while the seven-day waiting period is sold as a benefit that pays from day one, and many policyholders understand that this is a feature they have bought and paid for, it’s essential to understand that not all insurance policies will always backdate payments to day one. Some life insurers will specify that even if this waiting period has been selected and paid for, certain claim events will only be paid from day eight (for example, claims for minor infections without hospitalisation, back claims or partial claims, etc.). It’s critical for clients to know if their policy has any events that are excluded from payment in the first seven days.

Guiding your clients through their available waiting period options and explaining how these choices can affect their claim outcomes is a key opportunity for you as a financial adviser. In doing so, you establish trust and ensure that your clients feel confident in the policy they’ve selected for their financial security.