By Justin Sloane, Partner & Tayla Bruce and Candidate Attorney
COVID-19’s hard-hitting economic impact is bound to place an insurmountable number of jobs and livelihoods at risk. Individuals may fall ill during this time, be made redundant by their employer, or fall victim to their business having to close down. All of these options pose a threat to an individual’s prospect of unemployment. These are the very hurdles which income protection insurance is designed to overcome and provide for.
This article aims to provide an overview on income protection insurance policies, having regard to the implications of the COVID-19 pandemic. Further, this article explores the intricacies of claiming on these income protector policies.
WHAT IS INCOME PROTECTION INSURANCE?
Income protection insurance is intended as a long-term insurance policy, which provides for instances where an individual is permanently or temporarily unable to work, as a result of disability or illness. The insurance supplements your income until you retire, are able to work again, or upon death – whichever of these occurs first.
Income protection insurance is available to both employed, and self-employed individuals. Typically, monthly premiums are paid by the policy holder and are dependent on the percentage of your salary that you chose to insure, as well as the nature of your disability or illness and the effect that this may have on your capacity to work. Many income protection policies have been enhanced to include options for retrenchment and the closure of sole proprietorships and/or partnerships.
The question that comes to mind as a result of the unparalleled climate that we find ourselves in is “can I claim under my income protection policy, should I be unable to work as a result of infection by the coronavirus (COVID-19)?”
DO YOU HAVE A CLAIM?
The short and simple answer to this question is that it depends on the terms and conditions contained in your unique insurance policy, taking into account the medical exclusions that the policy encompasses. For example, if your policy contains a medical exclusion for ‘respiratory ailments’ or any other condition that might be associated with the coronavirus, you would not be covered under the policy for the income lost as a result of having the excluded condition.
It must be taken into account, however, that most insurers are likely to impose stringent requirements to be met by a policy holder, in order to have their claim against the policy succeed. These could include submitting proof of the loss of income or proof of the disability and/or diagnosis of illness.
Although the world is still learning about the novel effects and implications of the Coronavirus, most cases of the infection last up to two weeks and the consequences of such illness are not necessarily permanent. Depending on the contents of your policy, should you test positive for COVID-19, rendering you unable to work during the period of infection, a claim may be submitted under your income protection policy, to provide for the deficit encountered during this period.
It is also common for policy holders to take out insurance which provides sickness benefits to cover their needs over a short-term basis, over and above income protection insurance, which covers their long-term needs.
SUBMITTING A CLAIM
It is notable that income protection policies do not pay out as soon as a claim has been submitted by a policy holder. Instead, this time frame is determined by what is known as the “deferral period”. The deferral period is defined as the time between the day that you become unable to work, as a result of disability or illness, and the day that your policy pay-out occurs. The length of the deferral period differs across all income protection policies, and is selected by the policy holder upon inception of the insurance. The selection of the deferral period directly influences the monthly premiums to be paid on a policy and will oblige the policy holder to ascertain how long they can afford to manage without receiving an income.
Factors to consider in this determination would be the sick and/or annual leave accrued to you and any personal savings which you may have access to.
As previously stated, insurers are likely to require proof of your inability to earn an income as a result of having a disability or illness, in their assessment of whether the claim should or should not be successful against the policy. These requirements will vary according to the institution with which the policy is entered into and can be a crucial consideration in the acceptance or rejection of the claim.
The premiums paid on income protection policies are no longer tax deductible, as from 1 March 2015. However, any pay-outs derived from successful claims against an income protection policy are tax free, regardless of whether the benefit is paid as a lump sum or annuity.
Prior to the Taxation Laws Amendment Act, 2014, employees who belonged to a group income protection policy scheme offered by their employer, would enjoy a tax deduction on their individual tax return, on their contributions made to the policy.
It is important to take note of the unique terms and conditions contained in various income protection policies, which vary across the institutions offering this kind of insurance.
Each claim to be submitted will be assessed in line with the requirements contained in an individual’s respective policy, having regard to the definitions of the product and its benefits held by the policy holder, on a case by case basis.
As such, it is advisable that, when requiring assistance in identifying these intricate details in your policy, that you do so with us, who understand the workings of insurance law and who are able to propose tailored solutions and recommendations for your desired outcome.