When will a disability policy pay out?

A disability policy will only pay you out when you are disabled according to the definition of disability in your policy.  

Disability defined in terms of your ability to work

If your policy defines disability in terms of your ability to do your job, you need check the policy to see if it pays out for an inability to: 

Do your own occupation 

Insuring yourself against an inability to do your own occupation provides the greatest protection but is also the most expensive cover and may not be available for the type of job you do. 

Do your own or a similar occupation 

When you are insured for your own or a similar occupation, it means you will only be able to claim a benefit if you cannot perform the functions of your own occupation or a reasonable alternative, given your training, skills and previous work experience.

Your own occupation does not mean you are insured for an inability to do your current job or a specific job, but rather an inability to do your profession, trade, field or business in general.

When your life insurance company decides whether you are disabled or not in line with these definitions, there is an element of subjectivity which can lead to your claim being denied when you expect it to be paid.  

The life company needs to decide: 

• The criteria that should be used to determine your inability to do your job. 
• How much of your job you are incapable of doing. 
• The criteria for determining if you can do a similar job and what a suitable alternative job would be. 
• Whether you should be expected to do training in order to be able to take up an alternative job.  

The Long Term Insurance Ombudsman has set down some guidelines for life insurers to follow when making these decisions. Among these are: 

The life company should take into account: 

• Your age
  The closer you are to retirement, the less reasonable it is for an insurer to expect you to change jobs. 

• Your income
  You should not be expected to take a job with an income reduction of more than 25%. 

• The number of years you have spent in your current position
  The longer you have been working in a particular job, the less reasonable it is for the life insurer to expect you to accept an alternative position.  

• Your qualifications
  The less qualified you are, the less likely it is that you can be expected to accept an alternative position. 

 Any job (total disability) 

Insuring yourself against the inability to do any job or being totally disabled provides the least protection, particularly if you are a skilled worker or professional, but it is the cheapest cover.  

It does not mean you have to be a paralysed from the neck down, but your ability to deal with the overall demands of any job you could do should be taken into account. 

Disability defined by an impairment 

If your disability policy defines your disability in terms of a physical impairment you will need to have a disability that impairs your ability to move physically or your senses. 

The impairments listed could include the loss of a limb (fingers, hand, foot, arm, leg), speech, hearing, vision, confinement to a wheelchair or severe burns.  

If your policy defines your disability in terms of functional impairment, your disability could be any condition that impairs any limb or organ. Cover defined this way is broader than physical impairment and covers your whole body. 

In both cases, your ability to claim is not linked to your ability to perform your job.  

The disability definition may include an inability to do certain activities of daily living – this may ensure you still qualify for a benefit if your impairment is not covered by any of the physical or functional impairment definitions. 

If the benefit is tiered, you may be paid less than 100% of the sum for which you are insured for less severe impairments and it may be possible to claim more than once against this cover until you have claimed 100% of the sum insured.  

Permanent or temporary disability 

In order to claim a disability benefit, your disability will, in most cases, need to be declared permanent, which means that after reasonable treatment you are not expected to recover substantially from the condition. 

It can take time for the life company to establish the permanence of your condition. 

Income protection policies or income disability benefits offer cover for temporary disabilities from which you are likely to recover.