Toolbox: Defining moments for TPD insurance

While policy definitions for risk products are often similar from one insurer to the next, that is definitely not the case for Total and Permanent Disablement (TPD) and in particular ‘Own Occupation’ cover.

Advisers need to approach Own Occupation definitions within TPD policies with extreme caution given the degree of variance between different insurers and products. And while risk research is usually a valuable tool for comparing policies, the ratings process often doesn’t give much weight, if any, to many of the fundamental differences.

As the following case studies demonstrate, TPD policies can be a minefield for advisers who don’t have a strong working knowledge of the particular policy wordings of the products they recommend.

Case Study 1

The Surgeon’s Dilemma

William is a cardio-thoracic surgeon. After finishing his employment contract with a private hospital, he decides to takes some time off — to complete some specialist studies and also spend some time with his young family.

William is involved in a serious car accident. Smashed glass cuts through his left arm require surgery to repair muscle and nerve damage. Although it is successful, he now has reduced muscle strength and feeling in his left hand. This isn’t good for any surgeon, let alone a cardio-thoracic surgeon.

Issues that affect William’s claim

William’s occupation.Did you know that specialist medical practitioners, such as surgeons, have limitations applied with some policies? That is, their ability to perform their own occupation will not be assessed on the basis of their specialised duties, but their ability to perform as a medical practitioner in the broader sense. So if a surgeon — such as William — is able to work as a general practitioner, a claim may not be payable — regardless of the potential financial impact. In William’s situation, the value of paying for an Own Occupation TPD option is questionable if a broader definition will actually be applied at claim time.

Taking time off.Did you know that if you are not employed at the time of claim, some policies will apply a definition that requires you to be unable to perform any occupation that you are reasonably suited for? Even if you’ve technically been unemployed for only a week! Whereas other policies will only apply this harsher definition if you’ve been unemployed for a lengthier period, such as six months.

So is a TPD claim payable for William?One would certainly think so. But a policy that applies the harsher ‘any occupation the insured is reasonably suited to’ definition, when the insured is either a specialist medical practitioner or is unemployed at the time of claim, could avoid the claim.

Case Study 2

CEO of the year

George is a qualified accountant. Looking for a change, he decides to take on the role of chief executive of a medium-sized manufacturing company. Times aren’t good in manufacturing, and George — after 18 months of doing his utmost — takes some leave to recharge and subsequently suffers a breakdown. The pressures of his work ‘experiment’ have taken their toll. After three months, George’s doctors realise his deep state of depression means he won’t be able to go back to his job. A specialist psychiatric report states that George is “unlikely ever again to perform the duties of a chief executive due to anxiety, but may perform other sedentary and administrative duties after a period of recuperation”.

Issues that affect George’s claim

George’s change of job.Did you know that different policies consider the insured’s occupation in different ways? For example, while one insurer suggests it is the occupation you were performing at the time you applied for insurance, another requires that you must inform them of any change of occupation after starting your policy — so they can decide whether to continue the Own Occupation definition. Yet another insurer defines Own Occupation as any occupation performed within the five years before claim.

The occupation being assessed.The nature of the occupation that the insured is actually being assessed as being able to perform can differ greatly. If George is being assessed as a chief executive, should the fact that he is able to perform the duties of an accountant be relevant, even if his prior experience lends itself to that occupation?

Unlikely or unable?Did you know that some polices require the insured to be unable ever again to perform their own occupation? This is more stringent than suggesting the insured is ‘unlikely’ ever to be able to perform their own occupation. In George’s situation, it might be difficult to obtain medical advice that states the insured will, without question, never be able to go back to their job.

The term ‘unlikely’ is equivalent to the ‘balance of probabilities’ test applied in civil proceedings (for example, has less than 50 per cent chance of occurring). Whereas the term ‘is unable’ is equivalent to the ‘beyond reasonable doubt’ test applied in criminal proceedings (for example, 95 to 100 per cent chance of occurring).

So is a TPD claim payable for George?It would certainly seem so — based on what Own Occupation TPD is supposed to provide. But don’t be caught out by policies that are not up to market standard, and do not provide the benefits your client believes they are paying for.

Marc Fabris is strategic marketing manager - life risk withZurich Financial Services Australia .