I work but don't get paid; the insurance company won't insure me.
This is probably right for disability related benefits. Not to take away from what you do, lots of people valuable to our community do essential things but don't get paid for it, mothers and volunteers tend to top that list.
One of the factors with this is that insurance companies insure for financial loss; with unpaid occupations this is hard to quantify.
If you work under 20 paid hours per week the insurance companies can quantify some financial risk but the disability and responsibility placement now get a bit cloudy for managing the contract and the claim, so they draw the line, some companies it's 25 and others are 30 hours.
What makes this difficult for the insurance company is determining both impairments (to assess the level of disability) and managing rehabilitation. For example, you do 12 hours paid per week but your disability prevents you doing more than 8. While this is a 1/3 loss of work capacity, it's also only 4 hours or 1/2 of a full time working day.
Simple you say, I can't do what I need to do and a doctor signs it off. Yes, but. What if the reason for the disability isn't about your paid work but your unpaid work?
Let's talk a little more practical. In any given week you have 168 hours and you want the insurance company to insure you for about 1/8th of that time at 20 paid working hours per week, not much of it really. Ok take into account sleeping at 8 hours per day, 56 hours, eating 10 1/2, we're down to about 100 hours per week. This is still only 1/5th of the waking time actually working from the time you have available to you, at the most.
So why is this so hard?
The insurance company operates at a distance, and while they try and personalise policies they can only go so far. If they get too involved people tend to get a little annoyed, so it's a balancing act. Get enough information to make a decision but don't upset the applicant to the point they don't put the cover in place. Most people find the application process for insurance quite invasive, but not so invasive that they don't do it.
So how do we insure the financial loss of someone who is not paid or only works part time hours?
Well here are a couple of ways;
Use an income protection policy for Class 5 risks. Class 5 risks are those unpaid or part time I've outlined above.
The basis of this type of approach is to insure the direct financial costs associated with the person being disabled, up to a maximum monthly amount. This is generally in the region of $2,500 per month and has to be proven to get the claim paid.
And why we tend not to advise this approach.
The person disabled has to be confined to bed or hospital under medical supervision for 13 weeks to qualify for a claim. To qualify for an ongoing claim, they have to continue to be confined to bed under medical supervision. This makes these claims very unlikely. 1 in 6,000,000,000 was the stat an insurance actuary gave me at one point.
If you have a mortgage, create more financial certainty by using a mortgage protection policy from a company which allows for the mortgage to be insured for Class 5 risks. The claim criteria are similar to option 1, so not likely for claims either.
A third option;
Is to investigate using dependent care of a close relative option on your spouse's policy. If they have to give up work to look after you, then their income could have a portion replaced by the policy. This is dependent on your spouse not working which may not be a desirable or a manageable situation for you financially.
And often the preferred approach is to put additional Trauma cover in place, over and above what you would need for non-income replacement purposes. We generally start this conversation with, ‘What would the financial loss of x being disabled per month?' What would happen? What would need to be arranged? What does all this add up to? From here extrapolating this out for five years to get how much more trauma cover is required.
And recommended approach is to utilise a policy like Partners Life's Specific Conditions Cover, it looks and behaves similar to a trauma policy but kicks in for conditions that cause disabilities and work incapacity.
Based on the condition it pays a multiple of the cover amount, giving you financial support up to the equivalent of $3,000 per month without financial proof. For a broken femur, you'd get three times the policy benefit. In rough terms, the payment factors take into account the typical one month stand down you would find in an income protection claim. For example, one of the conditions says condition X pays three times provided the recovery is longer than four months. If it's under four months, then one of the other benefit criteria would pay two times.
Staying with option 4 for a second
To be clear, the approach in option four is covering off major trauma and not just being disabled. The test for a claim is higher than normally employed for income protection, as it requires the diagnosis of specific conditions to a certain clinical level to get a claim, but it is more likely than a claim for the first two examples. With the last and recommended approach giving both more flexibility of a claim actually being paid along with a reasonable expectation it would work.
Each situation is different and the number will vary from person to person and situation to situation.
Why five years? This is long enough to provide a buffer to recover initially from the condition and implement any change required without getting too expensive. Younger lives we can go longer but we find with older lives the budget to approach this aspect of risk planning only goes so far.
Like all advice, it needs to be specific to your situation, give us a call to have a chat about your situation and how we can assist you in finding the right one for you.