Growing EB trend: Top-up to group disability income insurance

Intuitively, people expect to receive a disability benefit equal to 100 percent of their pre-disability income to fully compensate them for the loss of their earning capacity. However, this is typically not the case.

Traditional disability income insurance provides a benefit that replaces a maximum of 75 percent of a claimant’s income should they be unable to work due to disability.

The guideline of a 75 percent maximum benefit, implemented by the Life Offices’ Association, now known as ASISA, was instituted mainly to provide an incentive for claimants to return to work and control moral hazards such as fraudulent claims in order to reduce the costs of the cover. Arguably, this measure has been a successful cost control tool. However, many disability income claimants are simply unable to return to work regardless of any incentive to do so, due to the nature or severity of their disability.

One in three adversely affected

Approximately a third of all disability income insurance claimants fall into this category and may be unable to ever return to work. They will have to settle for less than their full income going into the future.

The blow caused by the reduction in the claimant’s monthly income is coupled with the additional expenditure that arises for disability income insurance claimants, further exacerbating the financial strain that they face. This is because claimants generally find themselves in the position that their expenses have actually increased relative to their situation pre-disability. Unfortunately, this effect is particularly relevant to those whose conditions are quite severe as the impact of the disability on their lifestyle is generally greater.

Market trend

The trend in the market is for companies to take a step back and interrogate the needs of their clients. As such, new products have been released to provide larger disability income insurance benefits to claimants who may, in all likelihood, never be able to return to work again. One such product pays an additional 25 percent of the claimant’s insured salary over and above the existing 75 percent disability income insurance benefit.

Typically, a successful claim for this new breed of disability income product results from the underlying disability income insurance claim being accepted; and the acceptance of the disability income insurance claim being due to the claimant experiencing one or more of a set of specified conditions.

Assessing top-up claims

Insurers have collaborated with expert South African and international medical doctors to refine the set of conditions that are used when assessing such top-up claims. The general design philosophy of providing the top-up to those who may never return to work acts as the compass in defining the conditions so that they are relevant to claimants, more easily understood and objectively observable. Inclusive conditions that incorporate critical illness and functional impairment type definitions have been established to meet the needs of clients.

Payment of such top-up products will continue until the claimant reaches normal retirement age or until the cessation of the underlying disability income insurance to provide a consistent and meaningful benefit. The top-up products are designed to be flexible, robust and relevant in not only the diverse lives of clients but also in the current challenging and competitive economic climate.