One of the biggest decisions that needs to be made around income protection is what waiting period to choose. According to FMI’s 2019 claim stats, one of the key reasons why a lodged claim does not result in a payout is because of the waiting period selected. The fact that a claim is lodged in the first place points to the fact that many clients don’t understand their waiting periods or what a waiting period is. To be fair, customers can’t always be expected to read and understand the complex detail of their policy without the help of their adviser - even the term waiting period itself can mean different things on different insurance benefits.
Most clients understand their waiting period as it’s defined for medical aid benefits, where a waiting period typically refers to the period from the inception of cover where you cannot claim on that policy. But when it comes to life insurance, a waiting period is in fact the minimum period of consecutive days that you have to be unable to perform your occupation because an injury or illness before you can claim. So not only do policyholders need to know the waiting period that applies to their policy, they also need to understand how it is applied at claim stage. Unfortunately, this is often only realised when it comes time to claim, at which point it’s too late.
While there are cases where a longer waiting period is the appropriate cover for a client’s needs, the implications of this choice need to be understood upfront. During 2019, nearly half of FMI’s claims lasted less than 30 days – yet 55% of our clients have chosen a waiting period of 30 days or longer.
To demonstrate the importance of this lesson, let’s unpack the story of FMI policyholder, Allan Swanepoel. He runs a farm growing herbs and is a major culinary supplier to large retailers nationwide. Over the years Allan has had to undergo several surgeries including a back fusion, two knee operations, a hip replacement and an ankle fusion. Allan was fortunate that he selected a 7-day waiting period. If he’d selected a 30-day waiting period, his 567 days in claim would have dropped to around 318. That’s why a waiting period is one of the most critical decisions your clients will make when choosing income protection and why it’s important to choose a policy with an insurer who can offer the shortest waiting period possible.
FMI is proud to offer a 7-day waiting period to self-employed individuals, listed salaried professionals and commission earners. Most insurers only offer a 30-day waiting period for salaried individuals classified as non-professional. The logic around this approach is that employed customers typically have 30 days’ sick leave available to them. This unfortunately assumes that a client hasn’t taken any sick leave, which is rarely the case. That’s why FMI has made a 14-day waiting period available for salaried individuals, which offers applicants who don’t qualify for a 7-day waiting period with a better option than a 30-day waiting period.
Affordability may also be an issue, especially given the times we’re living in today. Selecting a longer waiting period is more affordable, but it does mean you won’t be able to claim if the period you’re unable to work for is shorter than the waiting period itself. If affordability is an issue, FMI allows applicants to split their cover across different waiting periods, which enables them to take some level of cover on a shorter waiting period.
Taking the time to understand the basic details of your policy and your chosen waiting period upfront will mean a better outcome at claims stage.