Personal Insurance and Endometriosis - The ‘101’ on Life, Disability and Trauma Covers
Background
Life risk insurance products are a cost-effective way to provide people with protection against life’s unexpected events: temporary or permanent disability, a major critical illness (trauma) or even terminal illness / premature death. Insurance for these events provide either a lump sum or income stream to help you, and those close to you, through these events financially as they may impact your ability to earn an income or to provide for yourself and others. There are four main types of life risk insurance products we will speak about in this article with most commentary around group and retail contracts as some policies provide cover for endometriosis events in certain circumstances:
Warning and Disclaimer: this document is designed to provide general, factual information only on insurance and endometriosis and it is not intended to be construed as general or personal financial, legal or tax advice to you. Patients may wish to seek advice from a qualified professional, read any relevant product disclosure statements and consider ASIC’s Moneysmart information on the classes of financial products mentioned here.
What are life risk insurance products?
Life Insurance - Pays a lump sum when you die or are deemed terminally ill (less than 12 (or 24) months to live).
Total And Permanent Disability (TPD) Insurance - Pays a lump sum typically to help with rehabilitation, nursing and living costs, and debt reduction. Typically triggered by a permanent inability to work in your own or any occupation, loss of limbs/sight/hearing (or a combination of these), loss of cognition or inability to do the activities of daily living.
Critical Illness (Trauma) Insurance - Pays a lump sum you if you’re diagnosed or treated for a major critical illness (typically 40+ conditions trigger a full payout and some policies provide partial claim benefits). Funds are often used to help with diagnosis, treatment, recovery and other financial costs of major illnesses.
Income Protection Insurance - Pays some of your income if you can’t work due to temporary sickness or injury. Subject to a waiting period (how long you wait before being paid) and a benefit period (how long the benefit is paid for)
Who issues these insurances in Australia? How are they accessed?
Life risk insurance covers are offered by highly regulated, licensed life insurers, friendly societies and reinsurers governed by (amongst other legislation) the Corporations Act 2001 (Cth), the Life Insurance Act 1995 (Cth) and the Insurance Contracts Act 1984 (Cth). Life risk insurance policies can be originated and owned on individuals, joint lives, multiple lives and on a group basis (such as for employees by an employer or by a trustee on the pooled membership of a superannuation fund). In Australia, life Insurers and reinsurers offer ordinary and superannuation-based life risk insurance covers to consumers via three primary channels with contract terms, medical/financial acceptance underwriting terms, premium rates and claims experiences across these pathways of access varying widely:
Group Insurance – as described above and distinguished by the fact that cover can often be automatically obtained (or is required to be offered) up to certain sum insured limits without underwriting for death, total and permanent disability and income protection.
Retail Advised – typically placed via a licensed financial adviser providing general or personal financial advice (the latter of which is advice tailored individually to the health and financial circumstances of the insured), medically and financially underwritten (assessed), and priced to that person’s unique characteristics with a retail life insurer.
Direct channel – where the consumer purchases coverage via phone or internet portals without general or personal advice in a self-directed manner.
Retail covers are the highest quality and provide the most comprehensive cover. Advisers can advise and compare the whole market for you and make personal recommendations. Group insurance can often provide a decent baseline amount of cover, sometimes with the advantage of ‘automatic acceptance’ on joining an employer or super fund, however this type of cover and Direct channels do often have more exclusions than retail policies so it’s important to read and understand your cover terms and conditions. Be cautious about buying direct via phone or internet particularly if the provider can only sell their own products (risk of bias).
Premiums Structures, Age and Indexation Considerations
Insurance can be paid on stepped premiums (variable age based) increases will occur each year as you get older) or more level (variable also) but remain at a similar cost, after allowances for indexation but which are anchored to the age taken out. Stepped premiums tend to be cheaper in the earlier years of a policy and are expensive in the later years. If you intend to hold your policy for the long-term (-10 years +), you may like to consider level (variable) premiums which may save you money in the long run but cost more in the early years. Some group insurances will be ‘unitised’. Some cover levels may decrease as you get older in age. Some policies will offer you higher cover on renewal to reflect with indexation (inflation). Premiums are calculated typically based on age, sex assigned at birth, occupation and smoker status as well as the level and types of cover held (and other factors, depending on how you source the cover (group, retail, direct)).
Life insurance in detail
Life insurance pays a lump sum to your chosen beneficiaries or estate when you die. The amount of cover (how much they are paid at claim time) depends on the sum insured on the policy. This type of insurance is designed to ease some of the financial impact of debt repayments and household expenses for a spouse and/or dependents/broader family. People typically take the following type of items into account when determining how much they may need:
Funeral costs and any palliative / medical care bills
Home loans, investment debts or other liabilities
Children’s education and other domestic costs
Replacement income for a spouse or family members, or
Specific estate bequests or gifts to beneficiaries.
Some policies have exclusions (which is when a policy will not pay out) so you need to understand what these are and how they affect the cost of your cover. These are listed in the product disclosure statement and/or policy document of the product issuer. As an example, suicide is typically not covered for the first 12-13 months of a policy. Some other lower-cost, default group cover arrangements, often provided by superannuation funds, may also have further exclusions such as death caused by acts of war or from engaging criminal activity.
Total and permanent disability (TPD) insurance in detail
TPD insurance provides a lump sum when illness or injury prevents you from being able to work again. No income, with increased medical costs, can significantly impact the lifestyle and financial health of yourself and those around you. Typically, TPD insurance allows for the payment of items such as:
Nursing and in-home care
Rehabilitation
Medical care
Home or vehicle modification
The balance of your home and/or investment mortgage
Children’s education and other costs, or
Ongoing income for you and your family.
There are two types of occupation definitions that you can choose from that will impact your ability to claim: “any or own occupation TPD”. The any occupation means you are unable to return to an occupation for which you are reasonably suited by education, training and/or experience. This definition makes it harder to claim as you may be able to return to a different occupation that suits your skills, training or experience. This is the only definition available if your insurance is held within super. Certain occupations can only have this type of definition. The own occupation definition means that you are unable to return to your occupation specifically. This makes it easier to claim as you are only being assessed against your own occupation. Holding your TPD policy in super can make it harder for you to access. You need to meet a condition of release before payment can be made, and payments need to be approved by the trustee of the fund. The own occupation definition is not available for new TPD policies held in super. TPD payments from super may also be subject to tax, and this can reduce the amount you receive on a claim. You should carefully consider the requirements of the trustee and super trust deed of your fund before holding your TPD policy in super. Some policies have exclusions. These are listed in the product disclosure statement and/or policy document of the product issuer. Some providers may exclude pre-existing conditions, others may accept cover but with higher premiums so its important to read your documents..
Trauma insurance in detail
Trauma insurance can provide a lump sum of money to help you meet medical expenses and reduce debts when you have suffered a major critical illness or medical trauma. The types of trauma covered will differ between policies, with some of the more commonly defined events being cancer, heart attack, and stroke. Typical, traditional trauma policies pay claims on over 40 major critical conditions or sometimes smaller partial sum insured amounts for lower severity defined conditions. Modern health severity contracts are also available that cover over 100 conditions. Due to the often temporary but recoverable nature of these vents (in many cases), no claim could be made under a TPD policy, but the medical costs could still be financially crippling. Trauma insurance payouts may cover items such as:
Debts repayments
Medical costs including specialised treatment
Nursing or in-home care
Care for children, or
Home or vehicle modifications.
One key difference between trauma insurance, compared to TPD or income protection, is that there is no work test. That is, the payment is made on the diagnosis and/or treatment of a specified medical event rather than your ability to work. This insurance, by its nature, cannot be held inside superannuation.
Income protection in detail
Income protection insurance provides a monthly payment in the event that you are unable to work due to illness or injury. Unlike TPD insurance, it covers temporary illness and injury. For new policies, total income from all sources is limited to 90 % of your pre-disability income for the first 6 months and 70% thereafter. There is a waiting period before your monthly payments start and then you can continue to receive the payments for the benefit period, that is how long it is paid for. The cost of cover will depend on the waiting and benefit periods selected, your gender, occupation, age and other factors. Income protection is designed to cover a large portion of your income for you to meet your financial commitments, medical costs and costs associated with helping you recover to return to work. With indemnity value income protection, there is no proof of income required until claim time. Generally, an average of your income over the preceding 12 months will be taken to determine your claim payment. If your income has reduced, so too will your payment. There are certain payments such as WorkCover, that will offset income protection payments you are due to receive. Check your policy details so that you know what these offsets are. Income protection policies have many additional features and benefits that can significantly assist in your time of need. Some of these can only be held outside of super to ensure you receive the benefit at the time of the claim. The product disclosure statement (PDS) will explain what these benefits are. Some are at no cost, while others will add to the cost of your policy.
Insurance held in super in detail
Insurance held through super can be paid from your super balance, or you can make additional contributions to fund the insurance. The fund can claim a tax deduction for premiums paid and, in many instances, they will pass this deduction (15% of the premium) back to you, reducing the net cost of the insurance cover. Paying with concessional (pre-tax) contributions can effectively reduce the cost of your cover. It is cost-effective because you are paying for it with money that has been taxed at the 15% contributions rate rather than at a personal tax rate that could be as high as 47% depending on your personal income. While the benefits are clear, there are some cautions to consider. If you pay for your insurance from your super balance, or your contributions don’t keep pace with the cost of your insurance, you will deplete your retirement savings. Regular review of your insurance needs and costs can help you to reduce this risk. This is particularly the risk if you take time out of the workforce (e.g., with responsibilities for children or caring for a loved one), as you may not contribute during this time if on no personal exertion income. Claiming insurance through super requires approval from the insurer as well as the trustee of the fund. This can cause lengthy delays in the claim process. Some trust deeds make it challenging to receive your payments as you need to meet a condition of release before they can pay your claim. Make sure your trust deed allows for ayments in the event of total and temporary disablement. If you add features and benefits to your policies, make sure that they can be used if the policy is held within super.
Risks to consider for personal life risk insurance
Keep up to date - The level of cover may not be suitable if your financial position changes. Your income increases need to be reflected in your income protection policy for you to receive the
maximum payment at claim time.
Increase in cover – Some policies allow for future increases in your cover without medical assessment for life events such as marriage, starting a family or home purchases. If further cover is required in the future, outside of these provisions, you will need to undergo underwriting assessment, and there is no guarantee the increased cover will be accepted by the insurer.
Non-disclosure - Not completing the application form(s) honestly and in full may give the product provider due cause to dispute any future claims.
Estate planning - Insurance held within super is not dealt with in your personal Will. You can elect for the proceeds to be paid to your estate or your dependants on death, provided you make a valid nomination to your super fund.
Tax to non-dependants - If your insurance is held within a super fund, and the benefit is paid to non-dependants, then there may be tax payable on the benefit of up to 32%.
Top 5 Q &A Questions of Endometriosis and Life Insurance
1) Can endometriosis as a pre-existing condition still be covered by income protection insurance?
It depends. This is because how cover is held or obtained may give different answers depending on the policy contract:
a) If the cover is secured automatically without medical assessment or disclosure requirements, for example given via group cover on joining a new superannuation fund when you change employers, cover for endometriosis or other pre-existing conditions may be given or may start after a period of time lapses e.g., 6 to 12 months. OR, not be covered, OR,
b) If, however, you seek retail underwritten cover then life insurers will ask for and make health-related judgments on diagnosis, prognosis and the effectiveness of interventions in the context of their evidence-informed decision making. Under Australian law, insureds (patients) have a duty to take reasonable care not to make a misrepresentation to life insurers when answering underwriting application questions about their age, gender, occupation, hours worked, smoker status, substance use, family history, health, and other pursuit and pastime factors when applying for or increasing covers. If that information is requested then all questions about your endometriosis should be provided where asked for. An insurer will then determine whether to:
i. accept your application for income protection (or trauma, tpd, life cover) and the policy will either be issued on standard rates and terms (full cover), or
ii. accept with an exclusion (for endometriosis or other conditions), or
iii. accept with a loading (full cover but with extra cost), or
iv. decline cover altogether if they assess the risk as too high.
Exclusions and loadings are reviewable over time.
2) What stage of endometriosis if any could prevent you from being able to obtain life insurance?
There is no ‘cut and dry’ rule when it comes to endometriosis and insurance as each person’s experience with the disease and its symptomology is so different. Also each insurer will have different medical underwriting guidelines about endometriosis. Some may cover it in their trauma policies as a partial benefit (3 of the 9 retail providers) so they will be more stringent, while the others are less likely to be. Insurers are tasked with looking at what is known about your health and family history and making a forward looking projection about whether you pose a normal or above average chance of claiming on the covers you are seeking in determining whether to give you cover now.
For TPD and income protection (disability) insurances, insurers are most concerned about whether a condition (in isolation or with other health background) or treatment is causing or associated with a reduced capacity to work. For all covers they will typically also be interested in (but not always):
Method of diagnosis;
What complications you have had (bowel adhesions, involvement of the urinary bladder, lungs or intestine, infertility, anaemia and menstrual irregularities);
Whether you have had hysterectomy or bilateral oophorectomy or multiple surgeries;
What co-morbidities and other factors are associated with your endometriosis (e.g., severity scales stage 1 to 4), mental health, etc).
Its important to remember that even if you haven’t been able to get cover before, insurer guidelines change all the time and if your health and/or capacity to work has improved since last enquiring or applying then its worth checking. Many insurers want more clients so it is often how a case is presented to an insurer or underwriter that can make a difference in whether a good cover decision can be obtained.
3) What people with endometriosis /pelvic pain/health conditions should know about their insurances, questions to ask, clauses to look out for?
Read and understand and seek advice on exactly:
a) What the cover is for – life, tpd, trauma or income protection
b) The terms and conditions (sums insured, when it will pay out, wait periods, benefit periods, disablement definitions).
c) Read what the Policy Document, PDS and Policy Schedules say – these are vital documents and keep them safe.
d) Check your beneficiary nomination if you were to pass away (typically paid to a spouse, child or estate on claim).
e) Exclusions – read the section about when the policy won’t pay. Pre-existing condition exclusions (if they exist in your policy) should be read very closely to determine if they will apply to endometriosis.
f) Understand the costs and tax consequences of holding cover inside vs outside superannuation
g) Don’t rush to move or cancel cover especially if you go to roll over your superannuation between accounts as this will cancel if you roll out and close an account. You may not be able to secure replacement cover so get advice before making big decisions!
4) What questions should we be asking our prospective health insurance provider to make sure we are get the most coverage possible for surgery/physio/other expenses?
Private health insurance (PHI) policies are totally different to life insurance products. They have what is known as universal community acceptance (everyone can get cover who wants it). These PHI policies cover some of the costs of treatment in a private hospital. Insurance can also help cover 'extras' – other medical services such as dental, physiotherapy, optical, pharmaceuticals and more. Holding this cover may reduce your tax liability as well (If you take out an appropriate level of private patient hospital cover for yourself, your spouse and all your dependants, you will not pay the Medicare Levy Surcharge). To allow for simpler comparison of health insurance products all Australian health insurers are required by law to provide details of each of their products to the Private Health Insurance Ombudsman. The PrivateHealth.gov.au link below details of every health insurance policy available in Australia and enables you to directly compare policies https://www.privatehealth.gov.au/dynamic/Search/ Private health insurers will typically cover surgery and theatre fees and medications you receive in hospital and accommodation. Key things to ask and check on your policy in context of endometriosis are:
Level of gynaecology cover
Excess amount if you need to go to hospital (higher excess = lower premium and lower excess = higher premium)
Gap costs or expenses if surgery required – check if any extra cost for things like anaesthesia
Bronze/silver/gold etc rating of policy – higher quality features/benefit, the better cover (generally) but more expensive.
Pharmaceutical limits – often non-PBS medications are required for endometriosis so a high pharmacy extras sub limit can be handy (e.g., prescribed medical cannabis is not on the PBS).
Physiotherapy and other extra limits – these are really important for endometriosis patients
Financial advisers do not provide financial advice on private health insurance so its matter of using comparison sites like the one above to choose the best option for you and your family.
5) any recommendations around how to find a financial planner who understands disability?
Members of the Financial Advice Association Australia (FAAA) uphold the highest professional and ethical standards. Their Find a Planner tool is useful start point: https://faaa.au/find-a-planner/ When considering insurance and disability strategies it is important people with endometriosis also consider their estate planning needs. Having an enduring power of attorney or guardian, advanced health directive and a will (for when you pass away),and a beneficiary nomination on your life insurance policy and superannuation account give important health/financial directions about your wishes to those around you and the to the product issuers if you lose capacity to make decisions yourself. A lawyer should prepare these documents with you.
Advice Warning and Disclaimer
This document contains general information about the benefits, costs and risks associated with certain product classes and strategies. Before making a commitment to purchase, alter or sell a financial product, you should ensure that you receive personal financial advice and obtain an individual Statement of Advice from a licensed financial adviser. You should also refer to the relevant product disclosure statement (PDS) for the financial product for further information on the financial, tax and product definitions that apply to the particular product involved.