AFRM Client Newsletter Q2 2021 - June 2021
In past communications, we have highlighted various impending regulatory changes which we believed merited our recommendation to you to review your insurance cover.
This time around, we are going back to basics in a bid to explain why it pays to review your cover regularly. First, it is important to understand that your life insurance is flexible and can be adapted to suit your changing needs.
For that reason, AFRM recommends that you have your financial risk management plan and related insurance cover reviewed with your AFRM adviser every 12-18 months if your personal and/or financial circumstances are changing significantly; or every few years if circumstances are more settled.
This will ensure that you are covered for just the right amount, paying the right amount, and getting the best value from your policy.
Accordingly, we suggest you ask yourself the following questions every 12-18 months:
Have I welcomed any new members to the family or taken on new responsibilities, such as caring for an older relative?
If so, you may want to add a new beneficiary to your policy or increase your amount insured to cover for your growing family’s future needs and the increased financial responsibility you have.
Have I changed jobs or got a promotion?
Your income is your biggest asset over the course of your life. If your income has changed, your future needs have likely changed too – so you would benefit from reviewing your sum insured with your AFRM financial risk adviser.
This is especially important if you have got Income Protection (IP). That is because your benefit amount, and the premium you are paying, are directly linked to the personal income we have recorded on your policy.
Have I paid off large debts?
The amount you are insured for is to cover for your future financial needs should something happen to you. If you have significantly paid down large debts, your needs may have changed.
You may want to think about reviewing your sum insured to ensure it is right for your needs – not too little, and also not too much.
Have I taken on any new debts?
Being insured for the right amount is an important factor when considering the suitability of cover. Our clients usually need a level of cover that can, as a minimum, pay off any existing debts should something happen to them. If you have taken on new debts, your needs may have changed.
Does my policy/policies have a health loading? Has my health improved – or have I stopped smoking?
Personal risk factors such as smoking, and your Body Mass Index (BMI) add what are called ‘premium loadings’ to your cover – which means you may pay a higher premium than someone who doesn’t have this risk factor.
If your health has improved (e.g. you have lowered your BMI or your lifestyle has changed recently), get in touch with your AFRM adviser to review your policy and determine if these loadings can be removed to help lower your premium.
There are numerous ways we may be able to adapt your levels of cover to suit your current needs:
1. Consider the total amount for which you are insured
Your premium is closely linked to the total amount for which you are insured. It is important to make sure you are covered for the right amount – not too little, not too much.
2. Consider whether paying stepped or level premiums are best for you
Most insurers offer two ways to structure your premiums:
Stepped premiums are recalculated each year based on your age at renewal – they start lower and increase as you get older.
Level premiums are ‘averaged out’ across the duration of your cover, which means they start higher in the early years but end up being cheaper in the later years.
Choosing the premium type that is right for you can have a big impact on the lifetime cost of your policy. Your AFRM adviser will be able to help with forecasting that impact.
3. Choose to accept or decline benefit indexation
Indexation is an automatic increase to your sum insured benefit level to ensure the value of your policy is not eroded by the impacts of inflation.
But you are in control – it is important to know that as the sum insured increases, the premium you pay may also increase.
This means there are circumstances in which you might want to decline the indexation offer.
4. Seek to remove any loadings or exclusions you might have
As discussed above, personal risk factors such as smoking, dangerous hobbies or occupations, or a high Body Mass Index (BMI) may add what is called a ‘premium loading’ to your cover – which means you pay a higher premium than someone who does not have those risk factors.
Alternatively, you may have a past or pre-existing condition or injury that has prompted the insurer to put an exclusion in your policy addressing that condition or injury.
Any loadings like these are recorded on your Policy Schedule. So, if your health improves or your lifestyle has changed recently, get in touch with your financial adviser to review your policy and determine if these loadings can be removed to help lower your premium.
Please feel free to review AFRM’s detailed review checklist on our website if you are unsure if it is time to review your cover. Or perhaps, share it with a family member or friend? We would be happy to help.
As an AFRM client you, no doubt, will have one or more of the four primary types of insurance cover we include in our financial risk management plans developed for you. (Click on each link below for more information about each type of insurance):
Death insurance, and;
However, we understand that sometimes it can be difficult to remember the exact purpose of each type of cover – exactly what it is meant to do.
Accordingly, in the following newsletter we have included brief explanations of each type of cover and they key things you need to know about them.
Again, you may already be aware of what each type of cover is designed to address but please feel free to share this information with anyone you know who may benefit from it.
Managing Director AFRM
Consumers who get advice on buying life insurance achieve better claims outcomes, says APRA
In April, the Australian Prudential Regulation Authority (APRA) released its latest Life Insurance Claims and Disputes Statistics report covering a rolling 12-month period from 1 January 2020 to 31 December 2020.
The data once again confirms clients who get advice on buying life insurance products are better off at claim time than people who do not get advice on their life insurance purchases.
“Generally, Individual Advised business shows higher admittance rates than Individual Non-Advised for the same cover type. This could be due to the policyholder having clearer expectations up front of what is covered by the product, or (related to the previous point) the adviser discouraging the policyholder from lodging a claim that is not covered by the policy,” APRA's report states.
The table below shows claims admittance rates (i.e. the claim successfully paid) by cover type and distribution channel [Note: Disability Income Insurance, DII, is also known and Income Protection insurance]:
The bottom line is that good advice and client education leads to a successful claim. It is our knowledge of the finer details of insurance contracts that makes a positive difference for you, our client.
Having a 24-year history as risk specialists, we hold the respect of; and have relationships with; insurers that enable us to get the best outcomes possible for our clients. We are not afraid to challenge insurance company decisions and our length of time in the business means their senior management listen when we do.
We also understand that insurance needs change as our clients move through their lives. That’s why annually we send you details of your current policies and always offer you a full review to ensure the appropriate risk strategy remains in place.
We are proud that we are there for our clients in their time of need.
We are also proud of the fact that we have achieved more than $200m in insurance claims paid to our clients.
“This case really highlighted the importance of understanding the policy wordings and just not accepting the first answer from the case assessors because they were not that experienced, and you could tell from talking to them that they were not confident in their decisions at times.”
This story starts with highly successful, C-level, corporate executive, Bob and his wife, Anne [names changed to protect client privacy], travelling interstate to visit family for the Christmas Holidays.
While away from home, Bob received a shock cancer diagnosis - stomach cancer with a significantly sized tumour found in his abdomen.
Rather than going home, Bob and Anne took medical advice to stay where they were and commence treatment for Bob immediately.
Being a high-level executive, Bob, is well capable of analysing complex contracts. In the wake of his initial diagnosis, he read all his insurance policies and their product disclosure statements (PDS) to assess his position.
He also immediately contacted AFRM to alert his adviser, Dan Musumeci, of the situation and to get Dan’s opinion of what claims he could make against his insurance.
Bob is a long-term AFRM client with two separate insurers: one providing Agreed Value Income Protection (IP) insurance (with a 90-day waiting period) and the other providing Term Life with Total and Permanent Disability and Trauma cover.
During a teleconference in early January, Bob advised that his diagnosis was confirmed. Prior to the meeting he had flagged a number of questions to raise with Dan re potential claims, including confirmation that he was eligible for his full Trauma benefit of $225,000, plus a number of questions related to additional IP-related claims.
By this time, AFRM had already filed a Trauma claim and also started investigating an Income Protection. Accordingly, Dan and AFRM Client Service Administrator, Mandy Rozario, had almost daily phone and/or email communications with Bob as they worked through each of his potential claims.
Bob’s treating physician had declared he would be unfit to work for six months and had already commenced a round of chemotherapy that was scheduled to continue for four months.
The range of questions he had for Dan included:
What are the chances of an IP claim being accepted?
Can my 90-day waiting period be waived in the case of cancer?
The agreed value of the IP benefit is about half of my current income – can you explain how that benefit amount is determined and how it may be affected by any other income I receive?
Will my maximum Trauma payout be impacted by any IP benefit, or will my IP benefit be impacted because I have received a lump sum Trauma benefit?
Will sick leave payments from my employer reduce the total amount of IP benefit I receive?
Similarly, will be IP payments be negatively impacted by any annual leave payments or any actual hours he works during the “off work” period?
Dan was able to address most of Bob’s questions in that initial meeting, advising that the insurer had developed newer (but not necessarily better) IP policy series’ since he had initially bought the policy, so they’d need to ensure the insurer adheres to the initial 2009 policy series terms, not the current policy terms.
Bob was also curious if there might be any additional benefits he might be able to claim from his insurers?
And this was where Bob’s claims began to get a little complex to say the least, because while Dan was ensuring he and Bob had a copy of the 2009 IP PDS to refer to, there were also a range of ancillary benefits – in both his Trauma and IP policies - that were likely to come into play.
What are ancillary benefits?
Apart from the optional benefits that can be added into a policy contract at additional cost, most insurance contracts provide a range of additional “ancillary” benefits that are built into the contract at no additional cost.
Ancillary benefits can be of significant value to policyholders – and their families ‒ and that is why AFRM often recommends to its clients that they select a contract that has a comprehensive range of ancillary benefits.
Examples of ancillary benefits that various insurers may, or may not, provide include:
Family Member Support Benefit – a reimbursement of lost earnings if an immediate family member ceases work to care for the life insured while they are totally disabled and confined to bed requiring full time care.
Nursing Care Benefit – a benefit payable if, on the advice of a medical practitioner, the life insured is under the care of a registered nurse.
Rehabilitation Benefit – a benefit that can pay the cost of rehabilitation programs taken for the purpose of retraining or re-education in order to seek a new vocation.
In Bob’s case issues arose around the “Accommodation”, “Confined to bed” and “Special Care” ancillary benefits that were included in one or both of his policies.
His Trauma claim case assessor initially pushed back when AFRM asked if Bob was eligible for an Accommodation benefit of up to $500 per day while Bob and his wife were away from home.
“The lump sum Trauma claim itself was okay, but the big thing was around all of the ancillary benefits,” Dan said.
“The other issue we encountered was that the case managers didn’t quite understand the policy terms and they perhaps lacked a bit of experience, generally, in managing some of these claims.”
“Essentially, the Accommodation benefit allows coverage if the claimant is away from home, or more than 100km away from home. The insurer initially pushed back and said ‘no’ and then after we had a few conversations with the case manager it became clear that the biggest issue was not that they were away from home but that they were already there and on holidays (when Bob was diagnosed); and that was the issue.”
AFRM ultimately successfully argued that the wording of the Accommodation benefit contained within the policy documentation and PDS did not specifically exclude payment of that benefit if the policyholder was diagnosed while away from home on holidays and chose to stay away from home while undergoing urgent treatment.
Similar issues arose when AFRM sought to claim a “Special Care benefit” for Bob’s wife, Anne, who was also away from home, unable to work, while providing bedside care to Bob while he was recovering from each chemotherapy session.
Again, the initial push back was because Anne was not caring for Bob at home but away from home and again Dan, supported by AFRM Client Service Administrator, Mandy Rozario, successfully argued that the intent or spirit of the wording of the benefit definition should be honoured. AFRM’s argument was supported by documentation from Anne’s employer, proving she was taking time off work to care for Bob.
An issue also arose over definitions relating to the Accommodation and Confined to Bed benefits because over the course of a four-month period Bob had numerous stays in hospital for his chemotherapy treatments.
Each time he’d spend about 4-5 days in hospital and then be required by his treating physicians to spend a further four days’ bed rest at home after each treatment.
In terms of the Confined to Bed benefit, there was debate over whether only the time in hospital should be included or should the benefit include the time confined to bed “at home” too.
There was an additional question of whether that benefit was payable within the 90-day waiting period under the IP policy even though the wording in the 2009 PDS stated:
“If you are Confined to Bed for more than two consecutive days during the Waiting Period and unable to earn any personal exertion income because of Sickness or Injury, we will pay this benefit.”
There was also confusion over whether or not the Family Assistance benefit was payable during the waiting period or if it was only payable after the end of the waiting period. This confusion was exacerbated by a payment being made by the insurer in January and then later the insurer advised the payment was in fact a mistake, asking for the funds to be returned or to be deducted from later IP claim payments.
By April, AFRM and Bob received a letter from the insurer apologising for the confusion caused and providing a new and more detailed interpretation of each of the ancillary benefits and how they are calculated.
We have insufficient space here to provide a full “blow by blow” account of all the arguments and counter arguments shared between AFRM and the insurers on Bob’s behalf.
Suffice to say Bob has indeed received significant ancillary benefit payments to date on top of the lump sum Trauma payment in excess of $225,000 for his stomach cancer.
His Trauma policy insurer also provided ancillary benefits including a “Financial Advice Benefit” of up to $2,000 and an “Accommodation Benefit” to cover “the travel costs for an immediate family member who needs to travel more than 100 km to be with you while you are confined in bed.”
Bob received the maximum Accommodation Benefit possible under his Trauma policy, 30 days totalling more than $7,000.
Separately, his ancillary benefits through his IP policy realised further “Confined to Bed” and “Special Care Benefit” payments totalling more than $40,000.
So, the point is – always pay close attention to the possibility of ancillary benefits claims and know how to argue to get them paid. Or at least have an expert like AFRM on your side.
“This case really highlighted the importance of understanding the policy wordings and just not accepting the first answer from the case assessors because they were not that experienced, and you could tell from talking to them that they were not confident in their decisions at times,” AFRM’s Dan Musumeci said.
Dan said the two case assessors involved in these claims had to refer back to management numerous times throughout the claims process and subsequently conceded the points to AFRM.
Dan said any policyholder without AFRM’s support may well have accepted the original decision and would have been out of pocket tens of thousands of dollars.