Knowing the difference between a partial disability trick and a treat

In this second part of his column, Financial Newswire’s life/risk insurance expert, Col Fullagar completes his explanation of what represents a treat versus a trick in the handling of disability insurance claims.

As stated at the start of this article, the purpose of the partial disability benefit is to encourage and assist the insured to return to work

Whilst a well-designed income protection insurance policy may achieve the aim on paper, the realities of the partial disability claim can, and arguably often do, derail the contractual intent

If an insured is considering a graduated return to work, the suggestion is very much “prepare before acting”.

The first preparation should be to carefully consider and understand the policy terms applying to the partial disability definition and benefits. Any concerns or questions arising out of this review should be noted.

Next the insurer should be approached on a “theoretical basis” ahead of the insured committing to a return to work, for example, “My client is considering a return to work if medical signoff can be obtained but before making any decisions or taking any actions ………”

The approach should see the insurer questioned about any aspects of the policy terms needing clarification and also questioning the insurer about how partial disability claim benefits are administered. The responses of the insurer should then be advised to and discussed with the insured.

Matters that might be considered and discussed include:

• What proofs will be required

The insured should be made aware that the days of simply providing a personal and medical claim form may end. Whilst the claim forms will continue, more questions will be asked including requesting details of hours worked and duties performed.

Additional proofs for an employee will be payslips and for the self-employed Profit & Loss Statements. Further there may well be clarifying questioning about various expense and revenue items, for example, whether expenses are business or personal, personal expenses add-backs to post-disability income, etc.

• Frequency of claim proofs

It is not uncommon for total disability claim forms to be required on a bi or tri-monthly basis; however, claim form reporting for partial claims will almost certainly revert to monthly as benefit entitlements are generally calculated on a monthly basis especially if post-disability earnings vary each month.

• Benefit payment recalculations

Notwithstanding the often contractual obligation for an insurer to calculate partial disability benefit entitlements on a monthly basis, a relatively recent aberration introduced by insurers is to undertake a recalculation of benefit entitlements at the end of the financial year.

The aim of this is to pick up any earnings in excess of pre-disability earnings in any month and use these to reduce the annualised benefit entitlements. The practical outcome of this is the insurer announces to the insured that there has been an “overpayment” which they magnanimously offer to claw-back on a drip-feed basis over several months.

The pragmatic impact of the above should not be underestimated especially if there is a time lag, which there often is, between the end of the financial year and the benefit recalculation being undertaken which could result in any claw-back overlapping with the subsequent financial year end, thus compounding the financial detriment.

• Failed return to work

Despite best intentions, for medical and/or non-medical reasons, a long-term return to work may not be achieved or, if achieved, not to the hoped-for extent. The insurer might therefore be quizzed about the contractual position if the return to work is unsuccessful i.e. will benefit payments recommence on a total disability basis or, because the insured has demonstrated some capacity to work, will there be a reduced benefit entitlement.

If the reality is there is a chance any return to work may not succeed, there may be merit in managing the insurer’s expectations in advance to this effect, for example, by way of clear and realistic claim form messages from the treating doctor.

• Return to different occupation

If an insured is looking to return to work in an occupation different to their original Own Occupation, it would be worth discussing with the insurer in advance, if and at what point does the new occupation become the insured’s new Own Occupation.

• Capability clause risk

Importantly, the insured should be alerted to the potential impact of any capability clause that exists within the policy which may not apply to total disability claims but come into play with partial disability claims.

• Manage insured expectations

To the extent that the above and any other relevant factors are considered, researched and discussed in advance with the insured, the insured’s expectations are better managed which will likely improve the chances of a return to work not being derailed but unpleasant surprises

• Initial partial disability claim

Of course, not all partial disability claims occur subsequent to a total disability claim as many claims will start and end as partial disability claims in which case the manner of advice to the insured would be appropriately amended.

Summary

There is no question that well-designed partial disability policy features and a well-managed partial disability claim are a Treat to behold.

There is also no question that the opposite of the above may well be seen as “a cunning act or scheme intended to deceive or outwit someone” aka a Trick.

Neither the insured nor their financial adviser can directly influence the policy or the management of the claim.

To the extent, however, that a key role of the financial adviser is to enable clients to make informed decisions, including and crucially when claim’s related decisions need to be made, the informed financial adviser can maximise the chance of the insured being well Treated.

Col Fullagar is the principal of Integrity Resolutions Pty Ltd