When she was in her twenties, Thandi*, who had recently become a mother, was involved in a car accident that left her paralysed from the neck down. Unfortunately, her employer did not have disability cover for their employees.
This means that almost 20 years later, Thandi is not receiving any income (except for some support from the Road Accident Fund) and uses the assistance and support of friends and family to employ two full-time carers to help her and keep the household running.
We might think that employees should take ownership of their own disability cover, which is true, but in practice they do not – especially young employees who believe ‘it will never happen to them’.
If employers provide the cover for their employees it is more cost effective, and they can ensure that all employees have some level of protection.
Types of disability policies
The disability cover that the employer could have had is one of two main types of policies – a disability income benefit or a lump sum disability benefit, says Michelle Acton, Principal Consultant, Old Mutual Corporate Consultants.
Disability income benefit
If the employer had provided a disability income benefit, it would have provided a monthly income for the period for which the employee was disabled up to retirement age.
The standard benefit amount is 75% of pensionable salary, with increases. This would have gone a long way towards providing financial support for someone in Thandi’s position.
Lump sum disability benefit
If Thandi’s employer had chosen the lump sum disability benefit cover, she would have received a once-off lump sum payout amounting to a multiple of her annual pensionable salary, minus tax (if it’s an approved benefit).
If her accident hadn’t resulted in permanent disability, the lump sum benefit would not have paid out. ‘It’s up to employers to communicate with employees so they’re aware of the implication and level of cover they would be provided and, ideally, the individual should top up their cover with a personal disability policy.’ explains Acton.
Definitions of disability
Acton says, when choosing a policy, an employer decides what disability definition to apply, depending on the type of work employees do. Definitions are also linked to various time frames.
For example, when Rafique*, a financial advisor who usually drove to his clients for consultations, was injured in a car accident, he started receiving disability income benefit payments after the waiting period.
Typically, during this initial period (12 to 24 months), the definition of disability is more relaxed. It may be that you are unable to perform your occupation with your own or another employer.
However, once the extended period kicks in, the definition of disability becomes more stringent and could be ‘own or similar occupation’. This means that a permanent disability claim will be approved only if you can’t perform your own or a similar occupation.
Although Rafique was no longer able to drive, the insurer deemed his recovery good enough to work as a financial advisor at, for example, a call centre (which did not involve driving but was similar to his current job), so his disability payment stopped.
Communicating terms and conditions to employees
The employer will usually be involved in setting up the company’s disability benefits, says Acton. It is important for the employer and HR to be clear about the policy conditions and to communicate them to all members.
When the company James* worked for (Employer A) was bought out by another (Employer B), the staff had to be transferred to the new company’s benefits.
Acton says, ‘When we asked Employer A if any employees had medical conditions, they said no. However, two months later, James, a high-income earner, went off sick with a medical condition he’d had for a year prior to the move. Employer A should have picked this up by checking with all the managers.’
If they had known, Employer B could have asked the insurer to waive the pre-existing condition exclusion or not transferred James until the claims process was finalised. Instead, his disability claim was declined.
‘We managed to convince his new employer that the inefficient HR process had prejudiced him and they undertook to pay the insurer approximately R8 million – the cost of his disability pay-out until retirement,’ says Acton.
A pre-existing condition is one of a range of circumstances known as exclusions in which an insurance benefit will normally not be paid out. This was a very unusual situation and serves to illustrate just how essential it is for employers to be familiar with the fine print of their policy.
*Names have been changed.
Note: The policy options, as well as terms and conditions mentioned in this article, are not an exhaustive list.
Key questions to ask your broker about disability cover
- What are the benefits of group cover?
- What is the difference between permanent and temporary cover?
- What is the most appropriate type of policy for our company?
- What are the exclusions?
- What are the territorial limits?
- What is best practice for adhering to claim notification periods?
- Can a conversion option be built into the policy?
- What other small-print should we be aware of?
- What is the most effective way of communicating this benefit to members?