Motor-vehicle accidents and incidents of violent crime in South Africa are leaving their mark on people’s lives in many different ways. Apart from the emotional trauma suffered, the long-term effects of physical injuries can also cause major disruptions.
Severe injuries or illness could affect one’s ability to work and force one to make adjustments or stop work altogether.
Although many people in formal employment have disability insurance cover through their employer or trade union, they often do not understand under what circumstances they would be able to claim the benefits. John Kotze, head of group assurance at Old Mutual, agrees that assessment of claims is a complex issue, as there are several factors that need to be taken into consideration when a claim is lodged and considered.
‘If you enjoy group disability cover, we recommend that you check whether it offers a monthly income or lump-sum benefit. Both types of insurance offer a useful way to protect your biggest asset, the ability to earn an income, but they differ in the extent and duration of disability that is required before a benefit is payable.”
A lump-sum disability benefit is a one-off payment based on a multiple of one’s annual income. The criteria are quite strict, as disability is defined as the total and permanent inability to perform any reasonable occupation.
Monthly income benefits are usually more flexible. They can be for a short period, such as two years, or till normal retirement age. The monthly benefit payment also stops when the person passes away or recovers sufficiently to return to work or reaches retirement age.
In a case where a person partially recovers from a disabling injury, he or she is encouraged to return to the workplace. Old Mutual usually continues to pay the benefit, but will adjust the amount to take the person’s new income into consideration.
‘In South Africa, the maximum monthly income benefit amount is usually about 75% of the pre-disability salary, but in some countries, like the United States, it is only 60%,” says Kotze.
Claimants should adjust their lifestyle to deal with this drop in income. Sometimes claimants do not change their budgets and later want to access retirement funds to assist them with paying debts. This is unfortunate, as the retirement savings should be used to provide an income in later years.
When assessing any disability claim, key questions that need to be answered are:
- Does the illness or injury prevent the person from doing his or her normal occupation or, if applicable, a reasonable alternative? This question focuses on the person’s ability to work — regardless of whether a suitable vacancy exists.
- What are the chances that his or her health will improve or deteriorate over time?
- What kind of disability cover does the person have: lump sum or monthly income?
‘In the final analysis each claim is considered on its own merits, within the parameters of the insurance policy,” Kotze says.
Just a final word of advice — avoid having too much disability cover as one is not allowed to cover more than one’s pre-disability income. In other words, one should not be better off financially after the health problem than before.