Know Your Money with Bronwyn Waner and Craig Finch
Know Your Money with Bronwyn Waner and Craig Finch
141. Protect Your Pay cheque: Bidvest Life Explains How Waiting Periods Impact Your Financial Security
Waiting periods might sound like just another technical detail in your insurance policy, but they're actually one of the most critical elements determining whether your income protection insurance will be there when you need it most. Bronwyn and Craig, deep dive into this often misunderstood aspect of financial planning, revealing how your choice of waiting period dramatically affects your ability to claim.
The conversation explores how waiting periods function differently for income protection compared to other insurance products. While medical aid or funeral cover typically have once-off waiting periods when you first join, income protection waiting periods apply every single time you need to claim for unrelated events. This seemingly small distinction makes an enormous difference – Bidvest Life Claim Report statistics reveal that 42% of claims paid on policies with 7-day waiting periods wouldn't qualify under 30-day waiting periods.
Melody from Bidvest Life unpacks their innovative "Fast-Track Criteria Events" that revolutionizes claims processing. Rather than waiting for lengthy occupational disability assessments, this approach identifies over 200 common medical conditions and injuries that repeatedly appear in claims data. When clients experience these specific events, they can receive immediate guaranteed payouts upon providing simple medical proof, bypassing traditional waiting periods altogether.
The hosts examine who qualifies for shorter waiting periods, challenging traditional industry norms that reserved 7-day waiting periods exclusively for professionals and self-employed individuals. The discussion reveals how commission earners, contract workers, and people with three-year degrees can now access this vital protection that was previously unavailable to them. They also highlight the powerful Future Cover Protector benefit that allows young professionals to increase their coverage by up to 300% without medical underwriting as their careers progress - a game-changing feature for those whose earnings will grow substantially over time.
Please subscribe to our podcast or have a look at our website
www.growthfp.co.za
Hello everybody, welcome to Know your Money. I'm Bronwyn Wehner.
Speaker 2:And I'm Craig Finch, and we are from Growth Financial Planning. We hope you enjoy our podcast. Hi Melody, nice to see you again in the studio. Last episode, warren asked a question about waiting periods. Warren, do you remember that question you asked?
Speaker 3:Yeah, you keep mentioning 7 days, 14 days, 30 days, 90 days. What does that mean?
Speaker 4:So a waiting period is essentially the amount of time that you need to be sick or injured or disabled and unable to work before your claim will start paying.
Speaker 2:Which claim it's like at school when you needed a sick note.
Speaker 1:Your doctor literally needs to give you that sick note. So that's got to be longer than 7.14.
Speaker 3:My staff still have to give me one of those?
Speaker 2:Yeah, but it's for your income protection for your loss of income. I can't work, therefore I'm not going to get paid.
Speaker 4:Most people if they think about a waiting period, if they've heard of a waiting period, they think about medical aid or they think about funeral cover. So funeral cover, as an example, has a six-month waiting period. That means that within the first six months of being on the cover you can't claim. So if anyone dies within that period they're not going to pay out the money, they're just going to refund your premiums. After the six-month period it'll pay out. Same with medical aid.
Speaker 4:Medical aid might say you've got a three-month general waiting period or a 12-month condition-specific waiting period so you can only start claiming for those conditions after that time. With income protection, your waiting period is going to apply every single time you have an income protection claim. So if something happens to me today and I've got a seven-day waiting period, I have to be sick and unable to do my job for seven days in order to get paid retrospectively from day one for as long as I'm unable to work. If I've got a 14-day, 30-day or a 90-day waiting period, I have to consecutively be unable to work for that period of time and if on day 15, day 31, day 91, I still can't work, then they'll continue paying me for as long as I can.
Speaker 3:Not retrospectively.
Speaker 4:Not retrospectively.
Speaker 3:And with regards to that, then so is it entirely up to a doctor's note.
Speaker 4:So it's going to depend what it is that you're claiming for. Typically speaking I'm speaking generally in the market an income protection benefit pays if you are unable to do your job. Prove that. If it's a doctor that's given a sick note that says you're booked off for the next two months, or they've gotten an occupational therapist involved with whatever it is that's happening with you, they do a report and say this is the impact it's going to have on your job.
Speaker 3:Would that person be independent then of the insurer?
Speaker 4:they could be. So it'll be your treating doctor that we get the information from, but we can also refer it to our own chief medical advisor.
Speaker 3:Yeah, the only reason I ask and it's weird is because obviously some people will try and game the system. No, of course, and I'm sure there are fraudulent doctors who will sign off and stuff like that. So how do you safeguard against that?
Speaker 4:It does happen, but obviously we do have medical specialists, and I mean our underwriting team. They all come from a medical background as well, so they'll be able to pick up if there's something funny going on something doesn't smell right.
Speaker 4:But yeah, so essentially that's what your waiting period is. But now the difference between the waiting periods is who qualifies for which one and what does it cost. Typically speaking, the shorter your waiting period is, so if you've got a seven-day waiting period, the more expensive it is, because you have a much higher chance of being able to claim because you don't have to wait as long in order to get a claim paid out. So the premium is slightly loaded for that. The flip side is, the longer your waiting period is, the cheaper the premium, because the chances of you being able to claim is much less especially on a 90-day waiting period.
Speaker 4:I don't know who sells a 90-day waiting period. I don't know if you guys see it often. It's not something I would ever recommend to a client because they're not going to be able to claim on that.
Speaker 3:I remember on a previous episode you said about that you pay straight away once.
Speaker 4:So that leads me to what I was saying. Thank you for reminding me which direction I was going. It depends what it is that you're claiming for. So there are various different claims criteria. Majority of the time in the industry, the claims criteria is occupational disability. With us, we have a little defense mechanism before occupational disability and we call it fast track events.
Speaker 4:We did a study in 2015. We were 20 years old at that time. We'd been paying income protection claims for 20 years, and so we looked at every single claim we'd ever paid and we realized that over 80% of the claims we ever paid were for the same things over and over and over again. So either it's someone's being booked off with a doctor's note you've got bronchitis, you can't work for two weeks or they've had an injury of some sort fractured, a bone, ligament, tear, muscle tear, that sort of thing. They've been diagnosed with a condition, so a cancer, heart disease, any one of those critical illnesses or they've gone for some sort of procedure. So, whether that is a double bypass or having your appendix removed, we see those same things over and over again.
Speaker 4:And then, looking at this list, so we have about 209 what we call FOSTRAC events. When we look at these events and we look at how can we assess the claim typically, how other insurers would assess it is based on can you work or not and in order to assess that, we have to get a form filled in by a doctor and an OT and whatever. And it can take a really long time to get that documentation back from the doctor because obviously their priority is treating their patient, not sitting doing paperwork. So it can take a while. You'll get your claim eventually but it can take a really, really long time and that's obviously a headache for the client, because the client needs money now because something's happened now, and obviously for the advisor that's a headache because their hands are tied. They can't help their client.
Speaker 4:So when we looked at this list of 209 fast track events, we realized that actually you don't need a specialist medical report necessarily filled in for this, because if I break my leg today, I'm going to the hospital, I'm having an x-ray done. I can show you that x-ray immediately. If I've gone for some sort of biopsy and they've discovered that it's cancerous, I probably have an empath or a Lancet document that says this is cancerous. So for every single one of those 209 events we've gone.
Speaker 4:You merely have to prove to us that that event has happened to you and we'll give you a guaranteed payout for a specified period of time for that particular condition. So when it's fast track events, it's always 100% of your cover amount for a guaranteed period of time for that particular condition. So when it's fast track events, it's always 100% of your cover amount for a guaranteed period, even if you're able to do your job. And then only after that, after we've done fast track events, if we continue assessing your claim. If you're then still unable to do your job, we go down the occupational criteria assessment, get the documentation from the doctors and the OTs, et cetera, and we'll pay then for as long as you are occupationally disabled.
Speaker 3:So in the other episode you also mentioned the year's payout. Was that only for, like what you call dread diseases?
Speaker 4:So that was specifically for our critical illness income benefit. That guarantees a payout for 12 months less your waiting period. When it comes to our fast track events, the maximum guaranteed payout would be 90 days, and here your waiting period is also going to have a big impact. The shorter your waiting period, the more events you qualify for.
Speaker 4:So someone on a 90-day waiting period won't qualify for any of the fast track events because their waiting period is longer than the maximum amount of days we would pay out. So definitely the shorter your waiting period the better, because you have a much better chance on our list of fast track events to claim. But even from an occupational disability perspective, it's much easier to claim on seven days and in fact, if we look at the stats, you are 42%, or 42% of the claims that we paid on a seven-day waiting period won't pay on a 30-day waiting period. So if you're taking a 30-day waiting period, you're essentially removing almost half of the potential things that could happen to you and that you could claim for you've taken off the table.
Speaker 2:But when you do the quotations, the longer the waiting period, the cheaper the premiums are, absolutely. So that could be a consideration for a client. And then, secondly, the client might have other money set aside for a 30-day event. So I say, okay, the first 30 days I'll insure myself, but after 30 days I'd like good best life to insure me, or even 90 days or whatever to bring the premium. So sometimes a client will look at the risk and say I'm prepared to take some of it on my own bet or not. But what I found is when the claim comes and you've got a 30-day waiting period or a 90-day waiting period, that's when the client thinks, wow, I should, I should have had the seven-day.
Speaker 1:Yeah then they regret the decision they made. And why didn't I have?
Speaker 2:the seven-day. I thought I actually had the seven-day. So you say that some clients now and I'm talking about 10, 15 years ago you wouldn't be able to claim or insure for a seven-day waiting period.
Speaker 4:Which we now can. Now you can, yes. So typically your seven-day waiting period in the industry has always been available to people who are considered professionals, so that's your doctors, your lawyers, your chartered accountants, those kinds of people, and then anyone who's self-employed, because obviously if you're a business owner working for yourself, from the first day you can't work, you can't earn an income. So those were the people that could get a seven-day cover. We've widened that net a little bit and gone. No, actually there are more people that need to have a seven-day waiting period Commission earners, like the two of you. If you're not actively sitting in front of a client, selling a policy or doing an investment or whatever, you're not earning an income. So from day one that you're unable to work, that's going to affect the income that you're going to earn 30 days down the line when checks are paid and that sort of thing. So for us it's important that a commission earner gets a seven-day waiting period. I'm not 100% sure, but the last I checked we are the only company that allows a commission earner to get a seven-day waiting period. We also extend that to independent contract workers Again, contract workers. If I'm not actively working on the contract, I'm not getting paid. But there's the added risk on top of a contract could be really short, short, it could be really long, and so insurance companies look at the duration of the contract and go not sure, I want to give you cover because you might not be able to pay your premiums going forward. But if they are lucky enough to qualify for cover in the market, it typically comes with a 30-day waiting period. So they've got that same risk of from day one that I can't work, I'm not getting paid but I also can't claim on my policy. So we give them a seven-day waiting period. And then end of last year we've made a new ruling.
Speaker 4:I often had this conversation with my boss so he's an actuary, I'm not. Had this conversation with my boss so he's an actuary, I'm not. I have a degree but I'm not considered a professional. But I work hand in hand with him. He earns a salary, I earn a salary. He's got a family, I've got a family.
Speaker 4:Financially there's no difference in the need between the two of us. So I'm like why is it fair that he can get a seven-day waiting period as a professional and I can't? When I can afford the premium for the seven-day waiting period, why can't I have it? And so we've debated that with many people and eventually we decided okay, if you've got an NQF7 qualification so that's a three-year degree, an advanced diploma, a BTEC, anything at NQF 7 level you qualify for a seven-day waiting period. If you can afford the premium, you can go and have the premium. There are one or two occupational exclusions there, so a hairdresser, as an example, even though they might be self-employed or might have a three-year degree, they will only ever get a 30-day waiting period with us.
Speaker 3:Why the distinction? If you can afford it, surely you should be able to get it Well from them.
Speaker 4:It's the risk from a claims experience, claims with hairdressers are extremely high for carpal tunnel and for back and neck because they stand so much.
Speaker 2:Oh, it's long yeah.
Speaker 4:So there it's a risk in terms of the amount of claims that we pay for that specific set of occupations, but outside of that, in Curve 7, you can afford the premium. You're a salaried individual who wouldn't typically qualify elsewhere. With us, you're going to get that.
Speaker 1:And the self-employed or the commission earner? Do they have to have a certain qualification or they just need to be listed as just the fact that they are self-employed or they are commission earner.
Speaker 4:That's what qualifies them, and I think something that we have to mention you mentioned it earlier as well is that, you know, the longer the waiting period, the cheaper the premium. The shorter the waiting period, the more expensive the premium. And human nature and obviously you know budgets are tight, cost of living is expensive people tend to go, oh well, that's cheap, I can afford that, let me take that. But they don't really understand the implication of taking that longer waiting period. Um, you know, it's a sacrifice that they're making, and so it's up to us to educate clients and make sure that they understand what that sacrifice is. Yes, it's cheaper, cool, I can afford that, it's comfortable. But why am I buying this product? I'm buying this product so that if something happens to me that I can't earn my income, I want this policy to pay out and unfortunately, the fact that you've chosen such a long waiting period in many instances would mean that you're not able to claim. So really, you've kind of wasted your premiums.
Speaker 1:And what you can also do is, for example, if you need to be insured for 20,000 Rand, okay, you can take the 20,000 on the 30-day waiting period at a certain premium. Or you can take 10,000 Rand on a seven-day waiting period to kind of match that similar premium. So you can still, as a planner, help a client if they are battling with premiums, but to rather be covered for more and less. Our thing is all about balance. You've got to have all these different things in the same time. You've got to have the retirement things at in the same time. You've got to have the retirement seniority and the life insurance.
Speaker 3:But just try find that balance, yeah, and so I mean it's probably an obvious thing to say, but the more you want to get insured for the most your premiums are going to be exactly and is there an upper? Limit if you can afford it.
Speaker 4:it's a hundred percent of your net income, so we're not allowed to assure you for more than what you actually earn Right. Otherwise that's seen as enrichment.
Speaker 3:Because that's an interesting one for obviously, business owners, self-employed, their income is not necessarily the same every year.
Speaker 4:Yes, so they will look at what their average income was over the last 12 months, financial underwriting will come into it.
Speaker 1:Yeah, and also remember that's on income protection, On the lump sum amounts. Those rules are a little different.
Speaker 3:So let's say you've started a business and five years later it's booming. Can you then adjust?
Speaker 4:Absolutely, you can adjust it.
Speaker 1:There is underwriting there.
Speaker 4:So it's going to depend. So typically, whenever you're going to increase cover, you have to go through medical underwriting. But we have some benefits built into our product. One is called the annual review option, which allows you every year in the month of policy anniversary so when your policy originally started in that month you can make an increase of up to 20% on your income benefits, disability benefits and 10% on your life and critical illness benefits, without any medical underwriting.
Speaker 4:It's literally, you've done the quotation with the increased cover, the client signs it and that's it no medical underwriting. The other option and I actually wanted to talk about it in our previous episode and I forgot is our Future Cover Protector. So the Future Cover Protector is an add-on benefit that you can add on to every single benefit, whether it's income or lump sum. Upfront, you're underwritten for it and you pay a small premium for it, but what that allows you to do is increase your income benefits by up to 300% and your lump sum benefits by up to 100% without any medical underwriting.
Speaker 4:So, like for me so you get it for a specific term depending on the age band that you're in, so a young person under 25, they get it for a 10-year term. They can exercise it at any point in time.
Speaker 2:Portions of it.
Speaker 4:Portions of it.
Speaker 2:So you've got 300% and you could use it as you, as and when.
Speaker 4:So you were talking earlier on about someone graduating as a lawyer. Okay, so they're graduating as a lawyer, but they still have to go do articles and all those sorts of things. So they might only be earning 10,000, 15,000 Rand in the beginning and then in a couple of years, once they've passed the bar and done that, they might have a significant increase in their income, might have a significant increase in their income. They can then make use of Future Cover Protector increase their cover to whatever their actual earning is at that point in time.
Speaker 2:But if they haven't got it, they can still do. 20% every year, they can still do 20%.
Speaker 4:That's automatically built in, but the Future Cover Protector absolutely young people. They need to take it because they could have significant increases in income.
Speaker 2:Do you specify Future cover on every benefit, Every single benefit that you want it on?
Speaker 4:yeah, the other advantage of the future cover protector especially for clients under the age of 35, is a first-time income earner doesn't necessarily need life cover.
Speaker 4:They're not married, they don't have dependents, they don't have property debt, et cetera. They don't need life cover. But often what happens is they get sold life cover because you're young and healthy and you might not get it later on. Nothing wrong with that. But you're spending money on something you don't necessarily need by adding Future Cover Protector to their income benefits and their disability lump sum benefits. That's giving that young professional the ability to either increase the cover they already have as their salary increases or they can add on a brand new life cover benefit when they need it without having to go through any medical underwriting. And if you think of someone like me, had I had a future cover benefit added to my policy when I was young, it wouldn't have mattered that I'm now medically uninsurable. I would have been able to exercise that benefit within a term and I could have increased my cover to what I'm actually earning now versus what I was earning in my 20s.
Speaker 1:So that 300% is it only once or is it every year?
Speaker 4:No, so you can use it as and when in portions. 300 is the limit. So if you only ever use 100, 200% in that term.
Speaker 1:That's fine. So can you give an example? Let's say it's 10,000 Rand.
Speaker 4:So if it's 10,000 Rand, 10,000 times 300% is 30,000. 30,000. So they can add an additional 30,000 on top of the 10,000 that they've got at the beginning, so I can have 10,000.
Speaker 1:And then that's the cap.
Speaker 4:That's the cap, so I can have 300%. I've got 10,000 now. Next year I pass the bar and now I earn 20,000. So it's literally just an amendment quotation an additional 10,000 around on top. I sign it. It goes through. They might still do financial underwriting, just to check that. That is what I'm actually earning.
Speaker 4:And then, you know, I might've had FCP on my income benefits and now I get married the following year and I go oh, I want to make sure I've got a life income benefit in place for my spouse so that additional. You know, I still have another $20,000 available. I could take $10,000 of that and again increase my income benefit and take the other $10,000 and add a life income benefit for my spouse. All of that is done free of underwriting, as long as I had added the Future Cover Protector to my policy when I was younger than 35.
Speaker 3:Okay, yeah, missed the boat. Yeah, really, thank you so much Pleasure.
Speaker 2:Some great features that we didn't know about. Thank you Fantastic. Thank you for listening. If you have enjoyed this podcast and would like to subscribe, please visit our website, wwwgrowthfpcoza. The information we have provided in this podcast is our personal opinion. For more detailed information, please discuss your financial situation with a financial planner.