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Incapacity and disability insurance – the great divide

Income replacement and lump sum disability insurance benefits are taken out by employers all over the world, giving them the peace of mind that their employees will be financially cared for in the event of incapacity resulting in medical boarding. At least that was probably the understanding at the time of going on risk.

While the assessment of an individual’s capacity to return and continue to work following recovery (or not) from an illness or injury may indicate the need for medical boarding based on unique work environment and or employer specific factors, this does not automatically equate to the admission of liability under the insured benefit fund once a disability claim has been lodged.

The assessment of a disability claim arising from an employee’s incapacity is carried out within the parameters of the fund, which is governed by specific contract policy wording. There is no automatic admission of liability because the employer and the employee’s doctor found the individual unable to work.

In reality, the factual evidence and reasons for medical boarding in a particular work environment may carry little weight in the decision making process followed by the risk fund managers, more so when the criteria applied in assessing ‘disability’ are substantially different. All too often it is assumed by the employer and employee alike that the inability to work in one environment stretches across all others, which is not the case within the context of contractual liability. Sadly this has the potential to leave the employee out in the cold and vulnerable to falling into the great divide between one set of qualifying criteria and another.

Let’s consider the example of a lump sum benefit which traditionally requires not only total and permanent disability, but in many instances also requires the individual to be unable to work in any suitable and reasonable alternative occupation taking their education, skills, training and experience into account. These requirements are onerous as, although a medical condition may be permanent, it may not be totally disabling in nature. Furthermore, although an individual may not be able to continue to work in their direct (own) occupation, it is possible that working in another suited occupation is reasonable.

The weighing and balancing of factual evidence in order to determine the validity of a claim within the relevant risk parameters is not the same as doing so within a specific work environment where, if employees cannot perform the job related outputs required and cannot be accommodated elsewhere, they are deemed disabled and are medically boarded as a result.

The regular claims review process attached to the merits of an income replacement benefit creates another area of confusion and possible divide, too complex to be covered in this short article. What is clear however is that many employees in receipt of an income benefit are under the false impression that it is an ill-health ‘pension’, to be paid on a monthly basis for the remainder of their ‘employable’ years. It is not so.

Regular reviews; on-going assessment and re-assessment; adjustments to the claims criteria after a certain period of time and part-payments are all woven into the management options of this particular type of benefit and claim.

Employers and employees would benefit greatly from learning more about how policy wordings are structured; how the wording is interpreted; how claims are assessed and managed and how the potential for an employee to slip between the cracks can be avoided.

The information, answers and guidance required in bridging this divide do not typically fall into the arena of the broker consultant; human resources department or financial advisor.

As with the assessment of incapacity in the workplace, this is a specialised area of consultation that leverages off extensive experience in the world of work, both at shop floor level and from the remoteness of the risk carrier.

Employers would enjoy greater peace of mind if more time was spent in gaining an in-depth understanding of what exactly their selected employee benefit structure covers in the event of incapacity prior to the selection of cover and going on risk.

March 2018

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