Every family's fear a disabled breadwinner
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Accidents can happen and they can be crippling — physically and financially. John C. Vann describes an insurance policy that can help alleviate the worst effects, should tragedy ever strike
THE CERTAINTY of a reasonable pension at 65 is fine. And a worthwhile life assurance policy or two is a good idea. But how many people in transport know that the risk of prolonged illness while under the age of 60 is greater than that of death at this time of life?
Is it possible to take out insurance cover against prolonged illness and consequent loss of earnings? The answer is yes — in the form of a permanent health or prolonged disability policy. These are different terms in use for the same type of insurance contract, but prolonged disability is the more descriptive title.
At the outset it may be as well to say what it isn't. There are so many "health" and "accident" and "hospital" schemes in force today that the consumer can be forgiven if he gets confused.
Prolonged disability insurance does not pay cash for hospitalisation only — that's the sort of policy advertised in some of the newspapers. It does not just pay for private treatment in illness — that's a scheme like BUPA. It does not pay a lump sum on accidental death, as do personal accident policies. All these policies cover only a limited part of one's needs (most illnesses are spent at home and most deaths are not accidental) and they cann o t be used instead of prolonged disability insurance.
What's wrong with the orthodox personal accident and sickness insurance policy? Nothing except for two snags: Olt is normally paid up to two years only, which is insufficient if you are totally disabled for a much longer period.
',Should a claim under the policy be paid as the result of a particular disease, insurers tend to be wary.
If there is a possibility that the disease may recur, such as with lumbago or fibrositis, the insured person is likely to be told at the next renewal of the policy that the disease in question is being deleted from the cover.
Because of this, if the person concerned approaches other insurers, they too will almost certainly follow suit in excluding the offending disease, as the previous claim must be declared and also the fact that the disease in question has been deleted from the previous policy. This kind of treatment by insurers, although understandable, does tend to defeat the whole object of sickness insurance.
Most illnesses or injuries are cleared up well within two years, yet one haulage driver told me recently that he was concerned about this.
"I've got heavy family responsibilities," he said, "and if I'm permanently disabled or a serious illness makes me bedridden for many years, then benefits payable for only two years are little use to me."
He inquired whether there is some kind of continuing insurance to provide for this kind of situation. Nobody had told him about prolonged disability insurance.
This is really long-term accident and sickness insurance cover, but of a special sort. A termination age in relation to the payment of benefits has to be fixed when the policy is taken out, usually at 60 or 65. In other words, if the policyholder becomes permanently disabled at age 45 and is unable to work again, benefits would be paid for 20 years to age 65 if this was the stipulated termination age shown.
The prolonged disability insurance contract cannot be amended or cancelled at the instigation of the insurers during its currency, assuming that the terms and conditions are not violated. As long as the policy holder continues to pay the premiums, the insurers have to settle all valid claims and also keep the contract in force on the same terms up to the age selected at the outset.
The outstanding attraction of this type of policy is that once a claim has been established, payment of benefits will con tinue throughout the period of incapacity up to the agreed age limit if necessary.
The cost is reasonable. Yet means do exist whereby the premium can be reduced. To use insurance jargon, it is possible to arrange an "excess" period of one month or three months — or even six or twelve months. This means that the insurers would only pay after the excess period had expired. For instance, a policyholder off work for a year would be paid for the final nine months only, if his policy carried an excess of the first three months.
If an illness is long-lasting, benefits may well be paid for several years. One 50-year-old transport manager with rheumatoid arthritis received a total benefit of £27,300.
Here we meet the problem of inflation. To combat the eroding effect of inflation, insurers have introduced an escalating benefit on terms guaranteed at the beginning. The rate of increase can be three, four or five per cent a year with most insurers, though occasionally a higher rate may be negotiated. Extra premium is called for under this extension of benefits.
For the purpose of insurance, disability normally means that the policyholder is totally unable through illness or accident to carry on the occupation indicated in the policy and is not following any other occupation. But most policies now contain an important rider. If, while totally disabled from following his normal occupation and receiving claim benefit, the policyholder engages in another occupation which, owing to his disability, results in a loss of earnings, a reduced benefit will continue to be payable in proportion to the loss of earn ings, at least for a specified period of time.
More and more prolonged disability insurance is being transacted on a group basis. With a group scheme there is a considerable saving on normal administration costs and in consequence premiums charged may be between 10 and 15 per cent less than for individual contracts.
A haulage firm, for instance, could arrange a group scheme for directors (or partners) and senior staff — or perhaps for all the staff. The firm could pay the whole premium or a proportion could be collected from each person who participates.
In some firms, full pay continues for, say, three or six months — and then perhaps half-pay for a further limited period when an employee is away from work because of illness or injury. If at the end of this time the employee is still incapacitated, an employer without any prolonged disability insurance scheme to safeguard salaries or wages may have no alternative but to call for the employee's resignation or arrange for premature retirement, perhaps on quite a low pension.
Under a group prolonged disability scheme, benefits may be arranged to start immediately an employee is away or they may, with an appropriate saving in premium, be delayed for up to, say 52 weeks, as under an individual's policy. Six months is a popular period of deferement for a group arrangement. Quite a number of schemes provide payment at half-salary scale (to which any State benefits would be added), though arrangements can be made for payments up to two-thirds salary, inclusive or exclusive of State benefits.
The cost of a group scheme is normally rather less than one per cent of the appropriate payroll, to provide benefit at half-salary level commencing six months after the inset of illness and continuing until recovery or retirement age, whichever comes first. Premium payments by an employer rank as a business expense here — which is an added attraction.