Insurance and pregnancy
06 February 2017
06 February 2017
Jonathan Armitage is the Chief Investment Officer at MLC. Jonathan assumes overall responsibility for the investment outcomes of the MLC portfolios.
This article will examine considerations for advisers, when giving insurance advice to women of child bearing age.
This article is for educational purposes only and is no longer available for CPD hours.
Women now make up more than half the Australian population, have longer life expectancies than men and play a leading role in household spending decisions.
However, they only make up around one-third of policy holders for individual life and disability insurance, and have lower average sums insured.*1*
These facts are even more surprising when considering workplace participation statistics. Women make up 45.8 per cent of the total workforce, including 53.3 per cent of professional workers.*2*
It may be that as women are more likely to exit the workforce, or at least work part-time, when dependent children are young, and this coincides with a crucial need for insurance, that the main breadwinner in the family is considered a higher priority at that time for cover.
But when doing the sums, advisers often find that the cost of replacing someone to provide childcare, transportation, household cleaning and cooking, along with family management, can be higher than replacing employment income.
One of the most misunderstood areas of insurance advice is pregnancy and its implications for existing and new cover.
Life and trauma insurance are the simplest of cover types, as eligibility is not based upon work status. Therefore, whether or not someone is working will not be a deciding factor.
For Life and trauma benefits, unless there has been a history of complications, cover will usually be considered at standard rates. Where there have been serious complications in either a previous pregnancy or the current pregnancy, an Extended Medical Attendants Report (EMAR) may be requested.
Note that this does not include side effects of routine screening tests or procedures, such as a caesarean section.
Therefore, unless there is a history of serious complications, pregnancy should not be a factor in whether or not cover is available.
For TPD benefits, like Life and trauma, unless there has been a history of complications, cover will usually be considered at standard rates.
However, if the client is more than 30 weeks pregnant (or for some insurers defined as being in the third trimester), then attaining cover may be more limited.
Some insurers will not approve TPD under an Any Occupation or Own Occupation definition, instead requiring the policy to be issued with a Home Duties TPD occupation. Others may not offer cover, or will defer a decision until after the birth.
Income Protection is usually available for employed expectant mothers up until the 30 week or third trimester mark (depending on the insurer).
Once past this point, most insurers will not offer cover and will defer a decision until after the birth and the mother has returned to employment.
Any changes to policy terms and coverage for periods of leave must be spelt out in the policy document for the policy in question. This means that every policy can be different.
Life and trauma cover are generally unaffected by periods of unpaid leave or exiting the workforce, as these cover types are not linked to employment.
Total permanent disability (TPD) policies can remain in force, however, the definition that now applies may vary. Policy terms can include:
Most insurers do not treat maternity leave as unemployment, unless the insured has ceased work entirely with her employer.
Income Protection policies will be affected by the contract type, along with clauses that allow definition changes. Advisers should take note of the following:
PDE definitions may refer to ‘the last 12 months of income prior to claim’, ‘the best 12 consecutive months of income during the last 24 months prior to claim’, or ‘the best 12 consecutive months income during the last 36 months prior to claim’.
Some policies also specify that unpaid leave is not included in the time period.
If a policy only allows for the last 12 months, periods of unpaid leave, including maternity leave, may reduce the claim possible.
Jillian earned $80,000 per annum in 2013, $82,000 in 2014 and then was on unpaid maternity leave in 2015.
Towards the end of 2015, she becomes disabled, and needs to make a claim. Her policy is an Indemnity contract, with a PDE definition of the last 12 months of income.
As Jillian has not earned an income for most of this period, her claim will be significantly lower as it will only be based upon anything earned during this time.
If the policy had a wider definition of PDE, the claim could have been based upon her 2014 earnings.
One principle is that the trustee can only release claim proceeds to the insured, in the event they have ceased work due to disability.
It could be argued that individuals on parental leave cannot meet this requirement as they have already ceased work, and therefore policy terms may be aligned with this interpretation. It will depend on the definition as to whether the policy terms define parental leave as unemployment.
Generally, this is not a problem with super-linked IP policies, as the non-super policy allows for a benefit to be paid. Super policies often tend to have more restrictive definitions of PDE, although not in all cases.
The exclusions are generally not designed to exclude unusual serious illness or injury that may occur during this period, but rather some of the more common injuries and illnesses which can take place.
For example, if the insured was recovering from an uncomplicated caesarean section which meant she was disabled for six weeks after birth, this would not usually be covered.
The difficult part about this for the insured is that they will only find this is the case if they attempt to claim, as the insurer has no way of knowing if the insured is working or not while the policy is in force.
This clause can generally be found in the section ‘When does this policy cease’ or by checking research software, such as Risk Researcher under the ratings provision, Guaranteed Renewability.
The second is a Premium Holiday or Policy Suspension. This benefit allows the policy to be put on hold, rather than cancelled, for up to six months in the event of parental leave, other unpaid leave or periods of unemployment and/or financial hardship. The downside is that the policy is not in force during this period, meaning that any injury or illness that occurs during this period of cover suspension will not be covered.
A small number of insurers have specific benefits which can be purchased to provide a lump sum claim in the event of serious pregnancy complications and congenital abnormalities.
These benefits are usually either included in or are optional benefits for trauma cover. These benefits will cover three types of events:
Cover usually has a 12 month qualifying period, similar to many health insurance policies. The cover is also limited to certain ages, with entry expiring at age 40 and coverage at age 45.
Although the benefit is attached to or part of a trauma policy, the payment is lower than the sum insured. For one such cover, the claim amount is $50,000 for complications of pregnancy and congenital abnormalities, or $10,000 under the death benefit. In another, 20 per cent of the sum insured up to $50,000 is payable in all of the above listed events.
Most advisers will be familiar with Home Duties TPD and Income Protection policies.
While these policies have a place, it should be noted that the definitions are generally more difficult to meet than occupational TPD or Income Protection.
Therefore, if TPD (Any or Own) or Income Protection policies are already in place, they should not be replaced with Home Duties policies, unless the cover has become invalid.
If no cover is in place, Home Duties policies allow cover to be taken out, which will ensure household help can be funded in the event of disability.
Home Duties TPD definitions require that the insured be unable to perform their normal household duties, and is unlikely to be able to again. An example of a normal household duties definition is as follows:
Normal household duties means the household duties normally performed by a person who remains at home and is not working in a regular occupation, including part-time and/or voluntary work, for income. Normal household duties include:
It is important to note that Home Duties TPD definitions usually require that the insured cannot perform all of their household duties.
Home Duties Income Protection policies are less common, but are more likely to result in a claim, as the insured does not need to be permanently disabled.
As an example, if the insured was in a car accident that resulted in physical disability for a period of six months, but then recovered, a Home Duties IP policy could provide coverage, where Home Duties TPD would not.
Home Duties IP policies generally cover up to $5,000 per month, for a two year benefit period. In the event the insured is unable to perform their normal household duties due to sickness or injury for longer than the waiting period, a claim can become payable.
It is generally agreed that unlike other forms of Income Protection, Home Duties IP premiums are not deductible to the policy owner. This is because the policy is not linked to paid employment, and not protecting any income.
When considering insurance for women, attention often falls on homemaker policies. While these have a role, putting comprehensive cover in place before the childbearing years results in more comprehensive cover over any time spent out of the workforce.
With this in mind, it is important not to forget that women are spending less time out of the workforce than ever before to raise families and that this only forms one life stage.
At more than 50 per cent of the population, advisers cannot afford to ignore this segment of clients. Smart strategies can ensure comprehensive cover that changes and adapts over your client’s lifetime.
Katherine Ashby, Senior Product Technical Manager, Life Insurance, BT.
Insurance and pregnancy06 February 2017 This article will examine considerations for advisers, when giving insurance advice to women of child bearing age. This article is for educational purposes only and is no longer available for CPD hours. Women now make up more than half the Australian population, have longer life expectancies than men and play a leading role in household spending decisions. However, they only make up around one-third of policy holders for individual life and disability insurance, and have lower average sums insured.*1* These facts are even more surprising when considering workplace participation statistics. Women make up 45.8 per cent of the total workforce, including 53.3 per cent of professional workers.*2* It may be that as women are more likely to exit the workforce, or at least work part-time, when dependent children are young, and this coincides with a crucial need for insurance, that the main breadwinner in the family is considered a higher priority at that time for cover. But when doing the sums, advisers often find that the cost of replacing someone to provide childcare, transportation, household cleaning and cooking, along with family management, can be higher than replacing employment income. One of the most misunderstood areas of insurance advice is pregnancy and its implications for existing and new cover. Eligibility of cover for expectant mothersLife and trauma coverLife and trauma insurance are the simplest of cover types, as eligibility is not based upon work status. Therefore, whether or not someone is working will not be a deciding factor. For Life and trauma benefits, unless there has been a history of complications, cover will usually be considered at standard rates. Where there have been serious complications in either a previous pregnancy or the current pregnancy, an Extended Medical Attendants Report (EMAR) may be requested. Note that this does not include side effects of routine screening tests or procedures, such as a caesarean section. Therefore, unless there is a history of serious complications, pregnancy should not be a factor in whether or not cover is available. Total and permanent disability (TPD)For TPD benefits, like Life and trauma, unless there has been a history of complications, cover will usually be considered at standard rates. However, if the client is more than 30 weeks pregnant (or for some insurers defined as being in the third trimester), then attaining cover may be more limited. Some insurers will not approve TPD under an Any Occupation or Own Occupation definition, instead requiring the policy to be issued with a Home Duties TPD occupation. Others may not offer cover, or will defer a decision until after the birth. Income ProtectionIncome Protection is usually available for employed expectant mothers up until the 30 week or third trimester mark (depending on the insurer). Once past this point, most insurers will not offer cover and will defer a decision until after the birth and the mother has returned to employment. Existing cover, parental leave and ceasing workAny changes to policy terms and coverage for periods of leave must be spelt out in the policy document for the policy in question. This means that every policy can be different. Life and trauma cover are generally unaffected by periods of unpaid leave or exiting the workforce, as these cover types are not linked to employment. Total permanent disability (TPD) policies can remain in force, however, the definition that now applies may vary. Policy terms can include:
Most insurers do not treat maternity leave as unemployment, unless the insured has ceased work entirely with her employer. Income Protection policies will be affected by the contract type, along with clauses that allow definition changes. Advisers should take note of the following:
PDE definitions may refer to ‘the last 12 months of income prior to claim’, ‘the best 12 consecutive months of income during the last 24 months prior to claim’, or ‘the best 12 consecutive months income during the last 36 months prior to claim’. Some policies also specify that unpaid leave is not included in the time period. If a policy only allows for the last 12 months, periods of unpaid leave, including maternity leave, may reduce the claim possible. ExampleJillian earned $80,000 per annum in 2013, $82,000 in 2014 and then was on unpaid maternity leave in 2015. Towards the end of 2015, she becomes disabled, and needs to make a claim. Her policy is an Indemnity contract, with a PDE definition of the last 12 months of income. As Jillian has not earned an income for most of this period, her claim will be significantly lower as it will only be based upon anything earned during this time. If the policy had a wider definition of PDE, the claim could have been based upon her 2014 earnings.
One principle is that the trustee can only release claim proceeds to the insured, in the event they have ceased work due to disability. It could be argued that individuals on parental leave cannot meet this requirement as they have already ceased work, and therefore policy terms may be aligned with this interpretation. It will depend on the definition as to whether the policy terms define parental leave as unemployment. Generally, this is not a problem with super-linked IP policies, as the non-super policy allows for a benefit to be paid. Super policies often tend to have more restrictive definitions of PDE, although not in all cases.
The exclusions are generally not designed to exclude unusual serious illness or injury that may occur during this period, but rather some of the more common injuries and illnesses which can take place. For example, if the insured was recovering from an uncomplicated caesarean section which meant she was disabled for six weeks after birth, this would not usually be covered.
The difficult part about this for the insured is that they will only find this is the case if they attempt to claim, as the insurer has no way of knowing if the insured is working or not while the policy is in force. This clause can generally be found in the section ‘When does this policy cease’ or by checking research software, such as Risk Researcher under the ratings provision, Guaranteed Renewability.
The second is a Premium Holiday or Policy Suspension. This benefit allows the policy to be put on hold, rather than cancelled, for up to six months in the event of parental leave, other unpaid leave or periods of unemployment and/or financial hardship. The downside is that the policy is not in force during this period, meaning that any injury or illness that occurs during this period of cover suspension will not be covered. Particular benefits for complications of pregnancyA small number of insurers have specific benefits which can be purchased to provide a lump sum claim in the event of serious pregnancy complications and congenital abnormalities. These benefits are usually either included in or are optional benefits for trauma cover. These benefits will cover three types of events:
Cover usually has a 12 month qualifying period, similar to many health insurance policies. The cover is also limited to certain ages, with entry expiring at age 40 and coverage at age 45. Although the benefit is attached to or part of a trauma policy, the payment is lower than the sum insured. For one such cover, the claim amount is $50,000 for complications of pregnancy and congenital abnormalities, or $10,000 under the death benefit. In another, 20 per cent of the sum insured up to $50,000 is payable in all of the above listed events. Stay-at-home parentsMost advisers will be familiar with Home Duties TPD and Income Protection policies. While these policies have a place, it should be noted that the definitions are generally more difficult to meet than occupational TPD or Income Protection. Therefore, if TPD (Any or Own) or Income Protection policies are already in place, they should not be replaced with Home Duties policies, unless the cover has become invalid. If no cover is in place, Home Duties policies allow cover to be taken out, which will ensure household help can be funded in the event of disability. Home Duties TPD definitions require that the insured be unable to perform their normal household duties, and is unlikely to be able to again. An example of a normal household duties definition is as follows: Normal household duties means the household duties normally performed by a person who remains at home and is not working in a regular occupation, including part-time and/or voluntary work, for income. Normal household duties include:
It is important to note that Home Duties TPD definitions usually require that the insured cannot perform all of their household duties. Home Duties Income Protection policies are less common, but are more likely to result in a claim, as the insured does not need to be permanently disabled. As an example, if the insured was in a car accident that resulted in physical disability for a period of six months, but then recovered, a Home Duties IP policy could provide coverage, where Home Duties TPD would not. Home Duties IP policies generally cover up to $5,000 per month, for a two year benefit period. In the event the insured is unable to perform their normal household duties due to sickness or injury for longer than the waiting period, a claim can become payable. It is generally agreed that unlike other forms of Income Protection, Home Duties IP premiums are not deductible to the policy owner. This is because the policy is not linked to paid employment, and not protecting any income. ConclusionWhen considering insurance for women, attention often falls on homemaker policies. While these have a role, putting comprehensive cover in place before the childbearing years results in more comprehensive cover over any time spent out of the workforce. With this in mind, it is important not to forget that women are spending less time out of the workforce than ever before to raise families and that this only forms one life stage. At more than 50 per cent of the population, advisers cannot afford to ignore this segment of clients. Smart strategies can ensure comprehensive cover that changes and adapts over your client’s lifetime. Katherine Ashby, Senior Product Technical Manager, Life Insurance, BT. Footnotes
|
HelpSelect and copy the HTML code above, or
Thank you a copy has been sent to your email. Your e-book will begin automatically. Please click the link below to download manually.
Click here to download