Taking the insurance out of the NDIS
It started life misnamed as insurance which created widespread misunderstanding. Gavin Lai explains why it’s important to understand that DisabilityCare complements rather than replaces traditional life insurance in providing dignity, protection and peace of mind.
It has a new name, DisabilityCare, – formerly National Disability Insurance Scheme – but it began life as an insurance scheme. It is unfortunately still widely known as an insurance scheme.
Why was the term “insurance” used to describe the scheme, and what effect could this past alias have?
A commonly cited definition of insurance is the transfer of the risk of a loss from one entity (the policyholder) to another (the insurer).
And when you look at what DisabilityCare is doing, it does indeed transfer the risk of “loss” (cost of care and support) from sufferers of severe and profound disabilities and their families to the Government (funded by taxpayers).
But the use of the word “insurance” may ultimately harm the Australian community, who may be misled by the terminology into relinquishing life insurance or underestimating its value.
Compared to DisabilityCare, life insurance is not a premium upgrade, or an optional extra on top of basic cover - like an upgraded airplane seat or private health insurance.
It is vitally important for consumers to understand that both traditional and Government-funded social support are necessary.
What’s the difference?
DisabilityCare does not replace the benefits provided by life insurance products such as Total and Permanent Disability (TPD) and Income Protection (IP) insurance.
These forms of life insurance provide either a lump sum amount selected by the customer or an income stream based on the person’s income if they suffer a permanent or temporary inability to work.
DisabilityCare, on the other hand, covers those qualifying under 65 with significant and permanent disabilities for the costs of providing care and support only.
It does not provide a lump sum amount, or replace income to use for ordinary living expenses. Some key differences between traditional life insurance and DisabilityCare support are outlined in Table 1.
The obvious differences are in the amounts paid, what they can be used for and how cover is obtained.
Less obvious, but equally important, is what life insurance does that DisabilityCare does not: protect assets and one’s income earning ability. In short, life insurance protects what you have created already and the dream you have for the future (or of those who depend on you).
Life insurance like TPD and IP, therefore, are for risk prevention, allowing people to protect themselves and their family against future loss and not having an income.
DisabilityCare is not a risk prevention tool – it is a safety net. It guarantees a minimum level of support for those with a severe disability.
DisabilityCare cannot make up for lost income, pay down financial obligations such as mortgages and provide for the type of care and treatment of one’s choosing.
DisabilityCare protects anybody (whether they can work or not) from the risk of not being able to afford proper care and treatment only. DisabilityCare will not help you pay for normal living expenses, like rent or mortgage payments, utility bills, transport and food.
The difference between DisabilityCare and life insurance is not unlike the distinction between mandated compulsory third party car insurance (protection for victims of car accidents) and comprehensive car insurance (covering vehicle, driver, and other losses).
Together they provide a combination of mandated and optional covers that work to provide adequate protection in case it is needed.
The overwhelming support in the community for DisabilityCare shows that Australians are willing to pay a little bit extra into a “pool” of funds to help provide quality care and support to those who need it.
The next step is to ensure Australians have adequate levels of life insurance to protect their lifestyle and of their dependents in the event of a loss of income.
It is vitally important to continually reinforce the undiminished importance of traditional insurance with consumers, because a widening of the underinsurance gap will have drastic consequences on people.
Gavin Lai is head of product, group at TAL Life.
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