Here’s everything you need to know about securing income protection insurance when you have pre-existing conditions.
Pre-existing conditions can make getting insurance more challenging, but not impossible as we saw in the previous blog about Life Cover with Pre-Existing Conditions. But what happens when you want to insure your livelihood through income protection? That can be a curly one!
What is Income Protection?
We insure what is important to us. Most of us are familiar with the importance of insuring our belongings – the physical “stuff”, but it is our income which pays for all of that “stuff”. Did you know that your income can also be insured?
Income protection (also known as income insurance, mortgage insurance, disability income, etc.) is a central part of most policies. As you can be insuring potentially millions of dollars of lost earnings from injury or sickness until the age of 70, the premiums can seem pretty high at times. Unfortunately, due to the premiums, a small number of clients refuse this critical cover and leave themselves very vulnerable in the event of illness. These clients usually consider themselves to be pretty healthy and when, generally after a health scare, they change their mind end up shocked that they can no longer get full cover due to pre-existing conditions. Conditions that they feel are not a big deal. This can cause some upset and confusion as well as anger at the insurance company.
Don’t stress though! Insurance advisers work through the complicated options with you, explaining where the risks lie and advising the right option for your needs – and your bank balance.
Read more about Health Cover with Pre-Existing Conditions
What is a pre-existing condition?
Pre-existing conditions are medical conditions that in the past you have suffered from, experienced symptoms of, or have received treatment for. But it doesn’t stop there! They are also medical conditions that you are are CURRENTLY suffering from, being treated for or suffering symptoms of at the time of your application. It is a fairly all-encompassing list that consequently, and understandably, affects many people. When an application form is completed any conditions must be declared so that the insurance underwriter can make a reasonable assessment of the risk.
The challenge is often that the applicant, the underwriter and GP all consider these pre-existing conditions differently. So if you hear your GP say ‘it’s nothing to worry about’ and subsequently don’t put it in the application it can cause problems at claim time. The same if you forget that operation 10 years ago as you are feeling better so why mention it, the underwriter will want to know.
What are insurers looking for?
Your insurance company, whether that be Sovereign, Partners Life or State, will re-insure your policy with a larger re-insurer to protect them from the loss of a big claim. Re-insurers are some of the biggest companies you’ll never have heard of. Insurers have very strict guidelines from their re-insurers, who bear the most risk, and consequently, they may refuse to provide income protection for people who on the surface appear very healthy. So why is this?
Income covers, like other insurances, have a maximum loading amount and/or the number of exclusions before an application is declined but these amounts are much lower than for Life Insurance. The exclusions can also seem, on the surface, quite innocuous. In general, the “magic” maximum number of exclusions before an application is declined is only three; the maximum a premium can be loaded is 150%. An adviser may be able to help you get something over the line in a borderline case, but nothing can be guaranteed.
Ok so what do loadings and exclusions look like?
Loadings are where the standard premium for your demographic is multiplied by a percentage. Loadings tend to be for non-specific risks, for example, high cholesterol can carry a 75% premium loading. A high BMI could add a 50% loading and high blood pressure may also result in a 50% loading. Raised Liver Enzymes? There’s a 50% loading. Diabetes can be a 150% loading and pre-diabetes can be a 50% loading. When the maximum loading before an application is declined is 150% you can see that it adds up quickly!
Exclusions are specific pre-existing conditions that the insurer flat-out refuses to offer income protection for. Where a condition is excluded from a cover, you will generally not receive insurance pay-outs if your claim is at all related to that condition. A common exclusion is mental health. Taking anti-depressants regularly will be enough to earn that exclusion. If you have a back that gives you a regular twinge, then your back will likely be an exclusion too. A pin in a broken ankle? That ankle won’t be covered. If there is an ongoing investigation into an illness, that illness will also be excluded. That knee injury that you are waiting on an MRI for? Excluded.
As you can imagine it is quite easy to go over the prescribed limit!
There is hope!
It’s not all bad news! Some things can even be surprising. It is best to disclose all conditions to your adviser from the outset. They can then use their experience to go to the right company for your situation. They will use their relationships with the underwriters to get an understanding of the best way to get a policy in place for you.
It’s also important to note that no doesn’t always mean no. A “no” right now from the insurers might not be a permanent no. As an example, lowering your cholesterol with medication and/or weight loss can make a huge difference. Not only can it be the difference between cover or no cover, but also a higher premium. Knowing this is one of the many reasons that it is great to have a company like Cover Yours in your corner.
Get all your insurances in place while you are young and healthy! Then any health conditions that come up are not pre-existing and won’t affect your premiums!
If your health has improved, it may be possible to have loadings reduced as a result. Maybe you’ve got your blood pressure under control or a subsequent test showed the initial diagnosis was wrong. Certainly, talk to your adviser to see how your health improvements may impact your premiums.
Get in touch now to talk through your options by calling 0800 COVER YOURS or filling out the form below. No obligation – just straightforward advice. Based in Kapiti or Wellington (or are passing through)? Let’s meet face to face to talk through your options. That’s not an offer you’ll get from online providers!
REGISTERED FINANCIAL ADVISER
P: 0800 COVER YOURS (0800 268 379) M: 022 040 7117