Does Your Life Insurer Really Know What You Do For A Living?

I’m writing this blog post because I recently picked up an interesting article in the paper (Saturday Star – Personal Finance – 31st March – Bruce Cameron). So what was jist of the story? This was the headline. “Life assurers reject disability claims if your job description isn’t accurate.” It really got my attention because we do a lot of life insurance business and, coupled with a good percentage of those life insurance policies, are ancillary critical illness and disability benefits.

“So what’s the deal with life insurers not paying out disability claims because job descriptions aren’t accurate? Are they trying to sneak out of paying claims?”

Well, it seems that the ombudsman’s office is seeing an increase in disability-related complaints where the occupation of the insured was an issue.

“But why does it matter what you did for a living? I’m disabled now, can’t work and need my disability benefit to pay-out!”

The Problem Is This…

What you do for a living actually does matter to your life insurer because different occupations carry varying degrees of risk. Someone working behind a desk in an office environment for eight hours a day is less likely to become disabled than a sales representative who is in his car all day calling on clients and navigating our treacherous roads. You agree?

And insurance rates (premiums) are always based on risk. The more risk the insurer takes on the more they charge. So if you put down on paper, at disability insurance application stage, that you work behind a desk in an admin role and at claim stage your life insurer finds out you’ve been rolling around Joburg as a sales rep for the last few years, you can understand they might be a little peeved! And they have good reason to be peeved because you didn’t disclose this new information to them and, as a result, you haven’t been paying the correct premiums for your disability cover.

Insurance is simply a transfer of risk. You run the risk of becoming permanently disabled and unable to work. You hand that risk over to the insurer who charges you a premium to carry that risk. The greater the risk the higher the charge and if you don’t let the insurer know you are at a higher risk they can’t charge you appropriately and that’s not part of the contract you entered into.

This Is What You Need To Remember

As a policy holder you are obliged to let your life insurer know when your occupation changes or the duties of your current occupation change (that’s the time spent doing different activities during the day). Failing to do that might result in a repudiated claim – and who wants to have paid in premiums for years on end just to find out at claim stage you aren’t getting paid out.

How Exactly Do I Break Down The Duties Of My Occupation Though?

This is the criteria life insurer’s use to measure your occupational risk. The more travel and manual work you do the higher the risk they take on (from a disability claim point of view)

1. How much of your day do you spend in an office?
2. How much of your day do you spend out of the office doing supervisory work?
3. How much of your day do you spend travelling? (that would exclude to work and back)
4. How much of your day do you spend on manual work? (that would be hard labour)

Example

Let’s assume John is the owner of a small plumbing business. In an eight hour day John is in the office most of the day directing his crew to jobs in the area and handling admin work. John reckons that’s at least (4) hours of his day is spent in the office. Then at least once a day John is out with his crew on a job (he is training a few guys up). In that time span John spends (2) hour’s doing manual work and (2) hours travel. As a percentage of his day, John’s occupational duties would be expressed like this.

Admin (Office Bound) 50% – 4/8 hours a day
Travel (to clients and back) 25% – 2/8 hours a day
Manual (this is actual plumbing work) 25% – 2/8 hours a day

Let’s make another assumption. Let’s assume that John has disability cover with a particular life insurer. Let’s assume that at application stage John’s percentage split was as mentioned above. 50% of his day spent in the office on admin, 25% on travel and another 25% on manual work.

Now 3 years go by and John’s business has taken a turn for the worst. He has drastically downsized to a one man operation and is doing all the work himself. His wife is handling the invoicing and admin and John is out on the road and doing jobs 8 hours a day.

Does John need to let his life insurer know about the fact that his occupational duties have changed (which by the way look like this now – Travel 50%, Manual Work 50%)?

Absolutely…

John is a higher risk to the insurer because more of his time is being spent on the activities that life insurer’s deem to be riskier (Travel & Manual Work). As a result John should be paying more for his disability cover now than when we was spending 50% of his day in the office 3 years back.

If John puts in a disability claim now, he is going to have a hard time getting a pay-out.

If you’ve got a disability product in place and you change your occupation or your daily activities vastly change, drop your broker a mail and check on the detail you put down on that application form. It could mean the difference between a pay-out or a repudiated claim.

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Until next time.

The InsuranceFundi Team

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