Claiming on an income protection policy can be fraught with intricate delays

By Andrew Hooker*

Life and income protection insurance are big ticket items.  Unlike home, contents or even business insurance, these policies cover you for life. 

In other words once you buy a policy, the insurance company covers you for as long as you live or until retirement age. 

And as you get older it becomes harder and harder to change insurers.

When you’re a healthy 30 year old, the policy seems simple to obtain and even reasonably priced.  But as you get older two things happen.  The premium usually gets higher, and it becomes more any more difficult to jump ships. 

After all, the competition is hardly fighting to insure an overweight 47 year old lawyer with high blood pressure and cholesterol problems.

The same applies to claims.  You only get one claim on a life policy.

And if you have to claim on your income protection policy for a serious disability or illness, you may find that you are behoven to you insurance company for a long, long time.  Never worry, at least you have insurance and don’t have the stress of wondering where your next dollar is coming from.  You can relax, and recuperate while your insurance policy replaces your lost income.

The problem is, some income insurance companies just can’t leave their customers alone.  The claim process can go something like this:

• You submit your claim and wait for months and months while your insurance company trawls through your medical records for the last 15 years to see whether there is anything you haven’t disclosed;
• Finally when they accept your claim they send you to a string of specialists to see if you are really disabled;
• Then they send you to an occupational physician or occupational therapist to see whether there is any other job you’re fit to do;
• If you pass all of the above, they vet your income before the disability to see whether you’re entitled to receive any benefit;
• Once they are satisfied that you are entitled to a benefit they deduct from your benefit any ACC or other income you are receiving;
• And throughout the process, just remember it is quite possible that you’re being watched by a PI, to see if you’re actually enjoying life more than you should.

You see, income protection policies have a number of carefully crafted clauses that insurers sometimes rely on to decide whether you are entitled to be paid:

• The "subjective test" clause. 
The policy contains a clause providing that you will be disabled only if "in our opinion" you are disabled.  In other words, even if you and your treating doctor believe you can’t work, your insurance company may be able to "trump" that with an opinion from their chosen doctor;

• The “other occupation” clause. 
Even if you will never do your job again, you may be able to retrain for another job.  Like the lifelong farmer who the company thought could get a job as a stock and station agent or the 25 year commercial photographer who could get a job as a photography tutor. 

If the insurer’s chosen occupational expert thinks you could do another job, they may just cut off your payments.  Even if there is no real possibility of you ever getting such a job.  It’s a hypothetical test and there’s no end to the imagination of the occupational expert as to what he or she might think you could do.

• The "indemnity clause". 
Unless you are one of the very few lucky people with a “valued” policy, your entitlement will be limited to what you actually earned (often through your own physical exertion) before the disability.  So if you had your affairs structured so income was spread or diverted through a company or trust, bad luck.  You’ll only get what you personally earned yourself.

These are just some examples.  Sometimes what the insurance companies try to do and what they are lawfully entitled to do are streets apart. 

The Courts have put somewhat of a gloss on the ability of insurers to enforce some of these clauses.  But in then end it’s important to know your rights. 

Your income claim may be a huge amount.  If you are 45 and can’t work again, a $100,000 policy is worth well over $2,000,000 (with inflation increases).  So your insurer will want you back to work or off the claim. 

These policies can be a web of fine print and so it’s important that you know your rights and don’t necessarily accept the insurance company’s decision.

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*Andrew Hooker is a partner in the North Shore law firm Turner Hopkins and a director of Claims Information Specialists Ltd, running an insurance information web site www.claimsinformationspecialists.co.nz