This article has been reproduced for study purposes only, and comprises fair use under Copyright Act Financial Security – 20 May 2008 Do your homework before buying income protection insurance. By Karen McGhee WHEN a baking dish exploded in Dr Heather Parker’s kitchen, it severed the flexor tendon, nerve and artery of her left middle finger. Successful surgery ensured the Queensland GP regained full use of the injured digit, but she required at least two months leave from her main professional roles doing minor surgical procedures and as a surgical assistant.
With a brief period of financial strain inevitable, Dr Parker’s income protection (IP) insurance
seemed like a godsend. She never dreamed she’d need her policy when she took it out more than six years ago on her accountant’s advice.
The policy cost about $700 a month and Dr Parker assumed making a claim would be simple.
However, she says the claims process proved bewildering and belittling.
Initially, obtaining a claim form was difficult. Then, despite providing all relevant medical reports,
she was required to authorise her insurer access to her personal medical files for the previous 25
years.
“I didn’t have anything to hide,” says Dr Parker, who has been in practice for 30 years. “But I didn’t like the thought someone in the insurance company could just trawl through [my personal records]. I also felt like [my insurer] was making it as hard as they could.”
After a 30‐day wait, Dr Parker began receiving benefits at a monthly rate of $5600 until her brief
period of disability ended. Although the income was considerably less than she would normally earn,
it was welcome financial assistance. She was also able to continue her usual part‐time work
conducting aviation medicals.
Given her experience, you might think Dr Parker would be reluctant to recommend IP, but the
opposite is true. She remains adamant IP insurance provides an important financial safety net for
GPs.
Claiming on IP insurance is usually straightforward, involving the completion of a claim form and provision of appropriate medical certification.
“But be sure to find out exactly what you’re covered for, especially the waiting period, whether it
covers you for partial disability and whether you are covered if you cannot continue your work as a doctor,” Dr Parker says. “Shop around and get the best coverage suited to your circumstances.” Before you even take out IP insurance, it is worth investigating other ways in which your income may already be protected.
“There are several different possibilities,” says Mr Matt Braund, a senior life risk adviser with Gow‐ Gates Financial Services, the company the AMA refers members to for advice on personal insurance and superannuation.
“Some people in industry [superannuation] funds will have salary continuance cover. Others might be covered by workers’ compensation if they run their business through a service company.”
However, cover through superannuation funds often does not provide for partial disability or the
level of salary protection many doctors need. And usually there is a maximum period of two years up to which benefits will be paid.
“Talk first to your super fund to find out what cover you’ve got. Then look at how much money you need to live on and whether that is going to be adequate for you,” says Ms Delia Rickard, acting
executive director of consumer protection with the Australian Securities and Investment
Commission (ASIC).
Ms Rickard says IP insurance is often advisable for professionals such as GPs. And Mr Braund agrees
it is the “most professional” way GPs can protect their income. Not surprisingly, insurance
companies are also advocates of this sort of cover.
“Income protection insurance is essential for professionals and all small business people — and GPs are both,”says Mr John Crosswell, executive general manager of life risk for insurance giant Suncorp.
“A GP’s biggest asset is often their future income; it can be more important than their house and
worth potentially more than the sale value of their business.
“The [insurance] industry is modernising at a rapid rate and one way companies are improving their offers is by focusing on key markets and really trying to understand particular customer sectors. We see professionals and small business, which of course includes doctors, as a key market.”
Be warned, however, this is not a straightforward or easily navigated area of insurance. New
products and policy structures are continually evolving and specialist jargon and legal definitions are commonplace.
Although ASIC rarely receives complaints about IP insurance, Ms Rickard agrees there is a lack of consistency across the industry, making it vital that individuals assess policies and product disclosure statements carefully.
Mr Braund advises similar caution and recommends the use of specialist advisers.
“You should find a very good life risk adviser who knows about all of this and is unbiased and not
getting huge commissions from [one or two specific insurers],” he says.
While the average accountant copes well with most business aspects of general practice, it’s likely
they could be out of their depth with IP.
Talking to colleagues about their experiences is worthwhile. Word‐of‐mouth is a valuable research
tool with IP insurance because companies develop good or bad reputations across particular
Some take particular interest in doctors and construct appropriate policies. Specialist brokers often maintain lists of insurers they would advise the medical profession to avoid.
Despite the lack of consistency in IP cover, some aspects should always be checked for major policy shortfalls. One of the most important is how disability is defined.
Mr Peter Steele, director of Brisbane‐based company Medico Legal Insurance Group, which
specialises in providing risk insurance advice to lawyers and doctors, says doctors should look at an insurer that provides an ‘own occupation’ definition of disablement. Mr Steele says this means if a doctor is injured or disabled and is unable to work as a doctor, they can make a claim on their insurance. He says if this isn’t clearly specified in a policy, an insurer might reject a claim on the basis the doctor could derive an income by, for example, doing clerical duties or working in a laboratory. Different levels of disablement also need to be clarified within the definition. Mr Braund says some insurers give an income‐based definition. “They say, for example, that if you’re earning less than 80% of your salary you’re deemed disabled.” He says this can suit GPs in particular because they would be covered if they can’t perform certain procedures because of an accident or illness and their income drops significantly as a result.
An example might be a doctor contracting a blood‐borne infection that precludes them from
working in certain facilities.
“People need to ask themselves how comprehensive they want their policy to be,”Ms Rickard says. Would they want to receive a benefit if their disability was partial and they could return to work part time? Or, only if it was total disability? Have they got enough money to survive if the disability is
temporary and only need cover if it’s permanent? Or do they want cover for both permanent and
temporary disability?
Ms Rickard also suggests checking whether a policy covers pre‐existing illness and how that is
defined. For example, if you had cancer 20 years before taking out a policy, are you covered if you develop cancer again?
Needlestick injury cover is a separate inclusion available for an additional amount and widely
recommended as a basic add‐on to the IP policies of doctors. This provides a separate lump‐sum
payment, over and above a monthly benefit, if the policy holder is infected through a needlestick
injury.
Another fundamental clarification on any policy is the waiting period before benefits begin. Mr
Steele believes anything less than 30 days isn’t worth the extra cost to premiums. Most professionals should be able to cover themselves for a month of lost income.
Insurance cover is usually up to 75% of income to a maximum yearly value of $250,000, although
“Most people [aged] up to 50 can get cover up to $150,000 a year by simply completing a questionnaire on family history and agreeing to a blood test to exclude HIV, hepatitis B and C, and check cholesterol levels and liver function,” Mr Steele says.
Insurers usually offer clients an automatic annual increase in the sum insured in line with the CPI
(about 4%). It’s also recommended you reassess your cover with significant life events, such as
marriage and the birth of children. Cover should also be kept in line with salary rises and business
expansions.
Two types of contract are available. With an agreed‐value contract, the monthly benefit is
determined at the time of application. Remember to factor in overheads and practice costs along
with base salary.
Lower premiums are usually available with an indemnity contract, which involves determining
appropriate benefits at the time of a claim, based on up to 80% of the client’s pre‐tax income during the previous 12 months. This can involve a lot of paperwork at a time when you feel least like doing it (ie, when you’re ill enough to be making a claim).
For dual‐income couples, it is widely recommended the salaries of both are protected.
Many experts also recommend trauma insurance. Unlike IP insurance, premiums are not tax
deductible, but it provides a tax‐free lump sum to the insured person upon diagnosis of an illness or after an accident. It means if one partner has a serious illness, such as cancer, the trauma policy payout could allow the other partner to take time off work.
PLANNING AHEAD PAYS OFF
DR Andrew Marsden did not need income protection insurance when he worked with the Royal
Australian Navy as a GP and then an occupational physician.
“But as soon as I came out into civilian practice, I thought it wise to be covered,” the WA‐based doctor says.
His has paid $4000‐$5000 a year for the insurance since 1986 and has occasionally questioned the
expense. But he was glad he kept the policy when in 2000 he fractured his spine during a mishap
while cycling to work. Initially there were concerns that Dr Marsden faced long‐term disability. This proved not to be the case, but he was off work for 11 weeks. He returned to work initially at seven weeks but after two weeks needed a further two weeks’ leave. Dr Marsden has nothing but praise for the way his insurer handled his claim. “[Mine] was fantastic,” he says. “I sent in the appropriate certification from my local doctor and the
hospital surgeon who operated on my neck and [my insurer] sent me back a claim form. It was
simple.
“All the way along, all we had to do was fill out the appropriate forms, send them certification and the money came back. There were no dramas of any sort or requests for second opinions.”
The first benefit arrived on time one month after his accident and payments continued until he attempted to return to work. They restarted again, with no need for further documentation, when he realised he’d gone back too soon and required more time off.
