Income Protection Insurers - reluctant to pay


Rod was a partner of a small but profitable business.  When he entered into the business partnership he obtained financial advice and subsequently purchased income protection and business expenses insurance with one of the major insurers.  

His policy costs him $314.00 a month in premiums and provided for payment of approximately 75% of his normal income until the age of 65, in the event that he could no longer work.  

Some years later, he was diagnosed with bowel cancer.  He had invasive surgery and his cancer was so severe that his surgeon told him he would be off work for as long as two years recovering.  Rod made the decision to dissolve the business partnership, as there was no guarantee that he would ever be able to return to work.

Rod made a claim under his income protection policy.  Rod provided his insurer with his medical file and surgery notes.  He was interviewed by an insurance assessor, he was examined by the insurer’s specialist and he was put under surveillance.  At first, the insurer refused to pay the claim as the assessor had formed the view that his loss of income was not due to his ill health, but rather due to a breakdown in the business partnership.

After a battle with the insurer, Rod’s claim was eventually accepted and he received payments under the policy.

However when his surgeon provided a progress report stating that Rod was ‘getting ready to return to work’ the payments stopped without warning.  The truth was that Rod was not even well enough to go back to part time work, but rather than lie around the house feeling sorry for himself, he wanted to try to go back to work.  His insurer had jumped to the conclusion that Rod was well enough and back at work.

It was not until Rod threatened legal action that his insurance company offered him a settlement.

It is a sad reality that insurers appear to approach claims made under income protection policies, permanent and total disability policies, and trauma policies with a degree of cynicism.  There is talk in the industry of reforms including releasing super, or insurance benefits secured through super, to extremely ill patients.

But in the meantime if you have any type of wealth protection insurance, or are considering taking out a policy, look carefully at the limitations imposed on the policy.  For example a terminally ill patient who is not working but on sick leave, can be denied payment under a total disability insurance policy because they are technically still employed.

For information in relation to the legal aspects of wealth protection insurance or insurers stalling on claims, please contact us