Understanding waiting periods and payout timeframes

As a financial advisor you have the unenviable task of delivering a dose of reality – based on real claims experiences – to your clients. You have to point out the safety nets that will secure their financial wellbeing regardless of what may happen in the future.

You can do this by illustrating how income protection benefits such as disability, impairment, critical illness and income replacement form part of a comprehensive financial plan. An often overlooked aspect of planning for disability and critical illness is the impact that waiting and survival periods can have on your client’s financial wellbeing.

It is vital for financial advisors to link different insurance products to support and supplement each other in such events. Choosing benefits with the most appropriate waiting or survival periods will ensure that your clients can survive and recover from serious setbacks.

"In addition to predefined waiting or survival periods there are other variables that can delay the claims process, including the nature of the policy, the reason for the claim, the need for medical tests to be conducted to confirm a diagnosis and the wait for medical test results,” says Andre Froneman, Product Specialist at Altrisk.

"Any of these variables can delay a claim payout and leave the policyholder without an income. This is particularly true for the self employed, who may not have access to comprehensive employee benefits and paid sick leave.”

What are waiting and survival periods? And what are some of the other "delays” that your client could experience at claims stage? We turn to the Association of Savings and Investments SA (ASISA) definitions to find out what conditions lifestyle and income protection cover policies are subject to:

• Waiting period: This is the period that must pass before cover comes into effect. If the policy indicates a waiting period for spinal injuries your client cannot claim for this condition until the stipulated period has passed. This prevents policyholders from applying for cover in the knowledge they are likely to claim in the future.

Waiting periods vary depending on the benefit and a critical illness benefit may specify a waiting period only for certain diseases. And remember, these periods are not standardised across insurers. Your challenge is to familiarise yourself with the waiting periods applicable to the products you recommend.

• Survival period: This refers to the period that a policyholder must survive from the time of claim, before it will be paid. The survival period – typically 14 to 28 days – ensures that the benefit is paid to surviving policyholders, as they are not designed to pay benefits upon death.

• Elimination period: This is the period between the date that an illness or disability commences and the beginning of the benefit payment. It is used to prevent short-term disability or illness claims. Elimination periods are common for critical illness and disability income benefits and are between 14 and 28 days for critical illness products; and 1, 2 or 6 months for lump sum disability products.

• Off period: An off period applies to disability cover and is implemented in instances where a policyholder has claimed against a disability income benefit, returned to work, and then suffered a health deterioration necessitating another disability claim. If it is deemed that the relapse occurred during the off period – measured from the date of return to work – the policyholder will not need to undergo the elimination period again.

"It is essential for financial advisors to analyse their client’s personal circumstances and cover requirements from all angles,” concludes Froneman. "The advisor then needs to find the products and benefit structures that best meet the needs of their client.”

"In the modern environment of pressurised lifestyles and significant increases in the incidence of critical illness, today’s financial advisors have to be the ultimate scenario planners.”