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Life Protection with COVID-19

Since the outbreak of the Coronavirus, we have seen an enormous amount of change in how we go about our day to day living. 

Some have been unfortunate to have temporarily lost their job, or have taken a reduction of their normal working hours; others have been fortunate to have kept their job, having altered their working arrangements by working from home.

COVID-19 has had more than an effect on many people’s financial situation. In a time of crisis we generally tend to assess our spending habits and look to see where and how costs can be minimised. More importantly, the Coronavirus is having a detrimental effect on people’s health and, at the time of writing this, the Coronavirus has led to more than 270,000 deaths around the world which has prompted many people to either check their life insurance policies to see if they are covered for the Coronavirus or, due to their financial situation, look at options to reduce or suspend their premiums.

Those who received financial advice from a financial planner when implementing their life insurance plan may find they have more options available to assist in funding your life insurance premiums. For others, there may be confusion about how Coronavirus has impacted life insurance premiums and what is covered and can be claimed.

I have compiled a list of the most common questions that I have fielded over the past month which may be of assistance to you.

IS COVID-19 EXCLUDED FROM MY EXISTING INSURANCE POLICIES?

Definitely not! All existing retail insurance policies do not exclude death or disablement due to the Coronavirus, regardless of the severity.

CAN I CLAIM ON MY INCOME PROTECTION POLICY IF I CONTRACT THE CORONAVIRUS?

With income protection you must satisfy a continuous period of being disabled which is called the “waiting period” before the monthly benefit is payable. Waiting periods can vary from 14 days, up to 2 years.

If you have satisfied the waiting period, then you are eligible to claim. You should check your income protection policy to be clear about what waiting period is applicable to you.

DOES MY INCOME PROTECTION COVER ME WHILST BEING UNEMPLOYED DUE TO CORONAVIRUS?

It is important that you check your policy to see how your income protection is being paid for as it varies:

• Income Protection fully paid by your superannuation account generally will not cover you whilst being unemployed when your illness or injury occurs, unless you are unemployed because of an illness or injury for which you are currently on claim.

• Income Protection partially or fully paid by yourself generally will cover you for illness or accident whilst unemployed for 12 months. Partially paid income protection is generally when part or your premium is paid by your superannuation fund and another part paid by you personally.

Your financial adviser can assist you in confirming if you are covered whilst unemployed.

IS THERE ANY PREMIUM ASSISTANCE IF I BECOME UNEMPLOYED?

One of the major benefits of obtaining good financial advice is that you are more likely to have an insurance portfolio where some insurance products can provide some premium relief as an automatic inclusion or as an optional benefit. A good income protection policy will have a benefit called an “Involuntary Unemployment” benefit which, in the event of becoming involuntarily unemployed, allows premiums to be waived for a period of up to three months. During the three months that the premium is waived, your cover is still active.

Some insurers have extended this benefit to their entire insurance product suite, so it is important that you check your policy to see how you are covered.

WHAT CAN I DO IF I CANNOT AFFORD TO CONTINUE PAYING MY PREMIUMS?

There are several options available, however it is strongly recommended that you speak to your financial adviser before you contemplate any change.

You may consider pausing your policy for up to 12 months. The term used by insurers is a “premium suspension”, which means that you will not pay premiums for this period. It is very important to note that during this period, you will not be covered under the terms of the policy and would be unable to claim for any claimable event that occurred within the suspension period.

Another option may be to change the policy ownership from being owned by an individual to being owned by your superannuation fund. What this means is that instead of you paying your premiums from your after tax dollars, premiums may be able to be funded by your superannuation savings account. In taking this strategy, careful consideration is required as this will reduce the amount you have in your superannuation savings account. This strategy cannot be used for all insurance products and you will need to have your financial adviser assess if this strategy is viable for you.

Income protection premiums are primarily priced based on your occupation, health, age, the amount of cover required, the length of time that the benefit will be paid for, and the amount of time that you can wait before you start receiving the benefit. For example, in the event of an accident or injury, with a monthly benefit of $5,000, a waiting period of 30 days, and the benefit to age 65, should you have an accident or become ill, you will start to receive your monthly benefit if you are disabled for more than 30 days and the benefit will be payable to the age 65 or until you can go back to your normal occupation.

A way of reducing your income protection premium is to extend the waiting period from 30 days to 90 days. The important thing to note is that this means you will not receive a monthly benefit until you have been disabled for at least 90 days. Extending the waiting period to 90 days will result in around a 40% reduction on the premium. The longer you can wait for the benefit to be payable, the cheaper the premium will be; however careful consideration is required as this can cause you financial strain as you will need to support yourself the first for 90 days.

Insurance is quite complex as there are so many variables, options, and benefits that many people are unaware of. Getting life insurance advice from a financial planner is always recommended as they will be able to tailor cover to suit your needs and objectives. The most important part of using a financial planner is that they will be there to help you through the claim process and in times like these, where consideration on how to ensure you remain covered while managing your health and financial well-being.

By David Spiteri, Life Insurance Specialist