Income protection versus lump-sum disability: it’s an ongoing debate in the life industry, although market statistics suggest the lump-sum camp has the upper hand. Around 70% of the disability cover sold in South Africa is capital disability. Popular belief holds that these products provide greater certainty and value for money than income protections, which tends to be more expensive and offer less flexibility. Having capital in hand at claim stage is the more attractive option considering that, with a recurring option, aggregation against active income earned post-claim could reduce or end clients’ payouts.
Of course, income protection has its place, especially now that people are living longer post-claim thanks to medical advancements. Income protection safeguards against the ‘lottery effect’, which may see claimants outlive their capital. This may be why insurers are starting to offer more flexible income protection options, such as income payouts for death benefits.
In our opinion, the argument can be settled only at claim stage. The purpose of income protection and lump-sum disability cover is the same: to settle debt and protect future income.
Ultimately, the choice of product should suit the policyholder’s circumstances and needs at claim stage, something which is frankly impossible to foresee at point of sale. That’s why we offer our clients the best of both worlds. With BrightRock, if a client chooses lump-sum cover for their permanent expense needs, they can change this choice to a recurring payout at claim stage or to a combination of a lump-sum and an ongoing monthly income. Clients have to decide on their pay-out structure only once they have an insight into how long they’re likely to live, what their personal financial situation is, and what the current economic conditions are. For example, a client diagnosed with stage 4 cancer with a poor prognosis may take the lump sum, while a client who loses a hand may opt for recurring payouts to retirement, growing at CPI+1%, to replace lost income.
Another consideration is the different claims criteria that apply to capital disability products relative to income protection policies. In the market, the focus on occupational criteria and the practice of aggregation in a claim of benefits against active income mean clients who opted to buy an income protection policy may have their payout reduced or halted. This despite that they remain severely ill or injured and continue to meet the clinical criteria for a disabling illness or injury for which a claimant who opted for the lump sum would have received their full payout.
BrightRock uses the same clinical definition set for permanent income and capital disability payouts and, once a claim is approved, does not reassess later or reduce payouts against any active income the client is able to earn despite their disability, which optimises certainty for clients. This applies to both our individual life and group risk policies.
In our view, therefore, there’s no debate: clients should have the flexibility to choose the option that best suits their needs, at claim stage.
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