Over past few years many insurers have moved to a ‘three tier approach’ to income protection, using three broad definitions of total and partial disability: Duties, hours, and income.
Total & Partial Disability
Insurers generally class a case as ‘total disability’ when, because of sickness or injury, the insured is unable to perform an income producing duty for their occupation, and is thus no longer working. This differs from partial disability which is generally when, due to sickness of injury, the insured is unable to work at full capacity; or the insured’s monthly income is less than their pre-sickness or disability income. Both generally require the individual to be under regular medical care.
The ‘Duties-Based’ Definition
Generally speaking, a duties based definition relates to the insured being unable to perform an income producing duty, and thus not working. Keeping in mind the definitions above, this case is essentially the same as our understanding of ‘total disability’ and, provided all other policy conditions are met, the individual would be eligible for a full monthly benefit.
The ‘Hours-Based’ Definition
This definition applies if, due to sickness or injury, the insured is working in a reduced capacity. In this situation the ‘partial disability’ definition would apply. The monthly benefit received in this case can vary between insurers. Many work off a ’10 hour clause’ which allows the insured to work up to 10 hours and still receive a full benefit.
The ‘Income-Based’ Definition
As with the ‘hours-based’ definition, the ‘income-based’ definition is an example of partial-disability. Again under this definition it is possible to be working and earning some income. While the ‘hours-based’ definition focusses on the hours worked by the insured, as it’s name suggests, the ‘income-based’ definition focusses on the reduction in income suffered by the insured due to their accident or illness. Many insurance companies will provide a full payment in the event the insured earns under a certain percentage of their pre-claim salary, usually set at 20%, and for a set period of time.
Remember, the formulas used vary from company to company so be sure to ask one of our qualified advisors for some examples on how these definitions will work for you.