Beware simple Income Protection policies

We are sometimes come across advertisements stating things like “protect your income from only $2 per week!” or “Instant protection – just answer 5 simple questions” and I always shudder. I was reading a comment on the Choice website recently about a lady who applied for one of these direct policies and when it came to claim time the insurance company didn’t pay the claim as after they pulled the client’s Medicare records, they found out that she had an abnormal blood test almost five years ago. The policy had a blanket exclusion for all pre-existing conditions and this, it seems, was enough for them to deny the Income Protection claim.

Insurance companies gained a bad name for themselves in the 80s and 90s as they did not complete their due diligence at the time of application and substituted the “pre-existing condition” clause into the policy. This meant that they investigated the client’s health at the time of claim and often rejected claims after many years of the client paying their premiums and believing that they were covered.

After this insurance companies built into their application process an in depth medical questionnaire and sometimes automatic medicals (including blood tests, blood pressure readings, urinalysis….) that ensure a certain peace of mind for the client who can, with confidence, know that as long as they have disclosed everything to the insurance company that they are covered. They can then start to pay their premiums with this in mind. It also provides the Income Protection client and their adviser a chance to debate the terms of the contract to ensure that this will be the case in specific conditions.

Apart from gaining health clearance for any pre-existing conditions, we find that these policies contain particular exclusions that should not be present in an Income Protection policy. They are more often than not more expensive that a quality Income Protection policy available through an unbiased adviser.

I guess it is human nature to try and get things done as quickly and painlessly as possible, however there are some things that are simply not worth it. Income Protection is one of these.