Disability, what is the real risk?

Disability, what is the real risk?

I cover a lot of ground in this post, though a bit of a lengthy technical one. Maybe that's part of the reason protecting incomes is not high on the completed tasks list, as policy details can get quite complicated.

I have mentioned before that income protection in New Zealand is not something that is well covered, much like the rest of the world. With about 80% of the population without financial support in a non-accident disability situation. This comes with potentially limited support with ACC. There is a lot of exposure not only for you personally, but also for your family members, co-workers, suppliers and clients.

What is the real risk?

Recently I managed to get my sticky fingers on a claims report from a reinsurer that has coverage across a number of our insurance companies. This gives a better picture of the New Zealand market than the direct insurer claims statistics, as it removes some of the individual company policy peculiarities. This data is based on 4532 relatively recent disability claims in New Zealand. Sovereign currently has the largest pool of disability policies and claims, they deal with about 600 new disability claims per year, so this report is quite a large representation of New Zealand disability.

What do the numbers show?

The mix of gender for claims is possibly no surprise with 74% of claims paid being male and 26% female, given there is still a strong gender bias towards men as the primary income earner in most households. That is not to say there is not financial pressure if mum is disabled, it is just where the premium dollar is spent.

A common comment when talking with you as a client about disability insurance is ‘I’m fit and healthy and we have ACC and it is likely that an accident will be the cause so I’m ok’. The statistics bare out part of the typical client comment, ‘an accident will knock me over’, with 34% of disability claims being for an accident. What is not appreciated is income protection is paying claims for accidents in 34% of cases; meaning ACC is not paying or it is not paying to the level of income that can be proven at the time of disability. This is part of the financial shortfall you face in an accident ACC claim. This is not to say ACC does not work, just that it works differently to most people’s expectations. Income protection does provide tangible benefits in an accident disability situation.

Still on the subject of accident disabilities, when we have a look at accident claims by gender, the men have accidents in 39% of their claims and the women have accidents in 21% of their claims. So men are more likely to have accidents than women, sorry guys they might be right on this one. Looking at the split of claims paid based on occupation situation it is 57% white collar and 43% blue collar across both genders. When we have a close look at men’s accident claims, white-collar workers have fewer accidents, at 24% of male claims, than blue-collar workers, who have a 51% exposure to accident disabilities. A little bit scary if you are male in the blue-collar category, as you are more likely to be injured at work than any other demographic.

Does this mean ACC does not work?

No, what it says is accidents cause disabilities and not all of the loss of income is covered by ACC. Looking at the same statistics, accident income protection claims last an average of 10 - 14 months, white/blue/male/female situations, suggesting that the financial support required for recovery is longer than people anticipate. Typically, accident trauma/surgery situations, the body heals in 6-12 weeks, but the recovery back to your own job takes longer. Rehabilitation and mobility take time to recover.

I have had a client with a fall and a broken collar bone take a good 6 months to be back to work, and things still are not fully back to how they were. Where this is most pronounced is when your disability means you cannot go back to what you were doing, but you could do something else. In this situation, ACC turns the tap off because you can work, not in your own occupation but in another. With income protection, it is about you doing your own occupation and pays until you can go back to your own occupation, unless you choose to take another career path and you are able to work full time in it. The key point there is you have the choice.

My question is for those relying on ACC alone, can you get through 12 months without your income, or a significant part of your income, if you have an accident?

If you cannot go back to what you do, are you prepared to do something potentially menial to pay the bills?

If you answer no to either of these you probably need to have a chat with me about ensuring you are protected.

What about non-accident disabilities?

Good question, this is an area where there is no government support. Aside from the sickness benefit that most employed people would struggle to live on.

  • 17% of income protection claims are for mental health conditions, which last on average 18-20 months. Men have 14% of claims and women 24% of claims for mental health. No surprises with the guys, male white collar occupations mental health claims are 23% of their claims and male blue collar occupations it is 5%.
  • 13% of claims are for cancer and last an average of 14-17 months.
  • 10% of claims are for muscle or musculoskeletal claims, not accidents but disabilities where the body has mobility problems. These last on average 10-13 months for the boys and 18 months for the girls.
  • 7% of disabilities are for heart conditions.
  • 20% of claims are for other reasons, some of which can be classified as brain and cognitive problems, pain and sensory issues like sight, hearing and speech.
  • 69% of claims are back at work within 1 year and 85% are back to work within 2 years. Fidelity Life’s average claim is about 17 months currently.

With this last set of statistics you are thinking, ‘ok I will take a 2-year benefit rather than to age 65 or 70’, again that is a risk you could take. About 6% of claims go 2-3 years, another 6% go 3-6 years, and about 3% go longer than 6 years. Taking a 2 year benefit exposes you to being one of the 15% that need a longer claim than 2 years, but a 5 year benefit term would bring this down to a 5% risk you will need it longer. Which is about the risk you have of being totally permanently disabled for your own occupation, this is another lump sum product option we have avaliable.

What is the chance of being disabled? Typically between 1 in 4 to 1 in 5 chance that you or your partner will be disabled for 6 months before the age of 65.

What does this all mean for you?

If you have the financial resources to get through a loss of income for 2-3 years then you may not need income protection, but some level of support is probably still recommended.

If you have concerns about getting through short to average duration disability without insurance support, then you should have a chat with us to discuss your options and what it may cost. You might be surprised it may not be as expensive as you think.

Get in touch, we can provide you the information to make an informed decision about protecting your greatest financial asset, your ability to earn your income.

The information is only intended to be of a general nature and should not be relied upon in any part without obtaining full details of the products and services by contacting Willowgrove Consulting Limited. All product and service details, terms, conditions and other information are subject to change at anytime without notice. Terms, conditions and fees apply to the various products and services and are available on request. A disclosure document will be provided to you on request free of charge.

Jon-Paul Hale

Written by : Jon-Paul Hale

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