7 minute read
BUSINESS OVERHEAD INSURANCE
from ASSET Spring 2022
by ASSET
Business overheads insurance: a guide to the fine print
In a handy guide for advisers, Graeme Lindsay lays out exactly how different insurers define business overhead expenses.
Over the last two weeks, I’ve undertaken a review of the various Business Overhead Expenses (BOE) products on the market - and found some interesting differences.
The significant differences are in the total disablement definition: whether there’s an option for a partial disablement benefit, and, if so, what is the definition of partial disablement and what’s the basis for a claim.
To ensure I was comparing apples with apples, I have restricted the comparison to business overheads covers and excluded business income protection products.
There are five insurers offering BOE products: Asteron, Cigna, Fidelity, Medical Assurance and Resolution. The Resolution offers both the ex-AMP Lifetrack product and the exAXA product; both are available only to existing policyholders or people with direct connection to an existing policyholder.
Total disablement definitions
Let’s take a look at how the different insurers define total disablement.
Asteron
We consider the insured person to be totally disabled if they cannot perform either of:
• their usual occupation for more than 10 hours a week
• one or more of the important income-producing duties of their usual occupation The insured person must not be working for more than 10 incomeproducing hours a week in any gainful occupation. We will also consider the insured person to be totally disabled if they have suffered a sickness or injury while engaged full-time in normal domestic duties in their own home for more than 12 months, [or] they are continuously unable to perform at least three of the normal domestic duties solely because of the sickness or injury.
Cigna
The life assured is totally disabled if an illness or injury causes all the following to apply: • The life assured is unable to continuously perform their pre-disability occupation • The life assured isn’t working in their pre-disability occupation or any other gainful occupation We will not consider the life assured as working in their pre-disability occupation if they’re doing minor duties for up to 5 hours a week that are necessary to continue the business. Examples of minor duties include signing documents and answering emails or phone calls.
Fidelity
The insured person is disabled if as a direct result of sickness or injury they are… unable to:
• perform at least one important income-producing duty, or • engage in their own occupation for more than 10 hours per week; and not engaging in any occupation other than up to 10 hours per week in their own occupation
Medical Assurance
To be considered totally disabled, the insured person must:
• be unable to work for more than seven hours a week in their insured occupation due solely to sickness or injury • not be doing any other paid work
Resolution Life (Lifetrack)
The person insured is totally disabled if:
• they are so ill or injured that they can’t do their usual occupation; and
• they do not do any remunerative work
Resolution Life (Risk Protection Plan)
Total disability means that…
• The life insured is not engaged in his or her usual profession, business or occupation for more than 10 hours per week • The life insured is not engaged in any other profession, business or occupation The definitions for Cigna, Fidelity, Medical Insurance and both Resolution plans also stipulated that the insured person must be under the regular and ongoing care of a medical practitioner.
The significant differences
In terms of how total disablement is defined, the only significant differences are:
1 Asteron has the “normal domestic duties” extension which covers the situation of an insured ceasing to be employed in income-producing work. 2 Medical Assurance stipulates a person must not be working in their insured position more than seven hours a week, rather than the 10 hours defined by the others.
3 Cigna clearly states that they would allow “minor duties up to five hours per week” to not disallow the 10 hours limit.
4 Resolution (Lifetrack) uses the imprecise “they can’t do their usual occupation” rather than the more precise wordings of the other products. My view is that the Asteron and Cigna differences are meaningful. The MAS’ seven hours limit is unlikely to be of consequence. And the Resolution (Lifetrack) wording has the potential to cause problems at claim time; I would not recommend it.
Maximum total disablement benefit
The length of time a total disablement benefit can be paid is as follows -
• Asteron: the monthly benefit can be paid a maximum of 12 times over two years • Cigna: one- or two-year benefit periods • Fidelity: 100% of the monthly benefit for the first 12 months of claim, 50% for the second 12 months • Medical Assurance: 12 months
• Resolution Life (Lifetrack): maximum of 12 times the monthly benefit, but can be paid over 18 months
• Resolution Life (Risk Protection
Plan): 26 or 52 weeks but if the maximum benefit has not been paid in the prescribed benefit period, benefits can continue until the maximum benefit is reached.
Clearly, the Cigna benefit period of two years is the best offer. There’s not much difference between the others, but obviously premium could be an interesting factor here.
Partial Disablement
Cigna, Medical Assurance and Resolution (Lifetrack) do not provide optional cover for partial disablement. Other than stipulating that the insured must be under the continued care of a medical professional, the other insurers’ definitions are as follows:
Asteron
• the insured person is working or are able to work in their usual occupation for more than 10 hours per week • the insured person is working (or are only able to work) in their usual occupation in a reduced capacity, or for fewer hours than they worked before becoming disabled
• their partial disability is solely due to the same injury or sickness which caused them to be previously totally disabled • their share of the business income in the applicable month is less than their pre-disability business income.
Fidelity
The insured person is partially disabled, if as a direct result of sickness or injury, they are working (or could work), but because of continuing sickness or injury their share of business income is less than their share of pre-disability business income.
Resolution Life (Risk Protection Plan)
Partial disability means where, immediately following a period of at least two weeks of total disability, the life insured returns to work for more than 10 hours per week but, solely due to the continuation of the disability beyond the qualifying period, is not capable (based on medical evidence) of working more than the lesser of: 30 hours per week; or 75% of the average hours worked per week in the six months prior to suffering a total disability.
Key differences
The only significant differences for partial disability are:
When looking at how the benefits for partial disablement are calculated (see sidebar), the Asteron and Fidelity benefits are identical. Both base the benefit on the insured’s share of business ownership rather than productivity. Resolution Life’s is deficient in that “hours worked” by the insured is not necessarily related to the business’ income (ie turnover) and thus its ability to meet its overheads. On balance, I prefer the Asteron and Fidelity approach over the Resolution (RPP) “hours worked” approach. In summary, as with all products in the market, each product has its strengths and weaknesses. The adviser’s role is to determine the best fit for each client considering both wordings and premiums. A
1 Asteron requires the insured to be working for fewer hours or in a reduced capacity and earning less than they were before the disability commenced. 2 Fidelity requires the insured’s medical adviser to advise that the insured needs to reduce
their hours and they are earning less than they were before the disability commenced. 3 The Resolution (RPP) definition is strictly based on “hours worked” – that is, working more than 10 hours but less than 30 hours (or 75% of the hours worked prior). My view of these differences is that the Asteron definition that has a “reduced capacity” option is the best. Fidelity doesn’t have the “capacity” leg but does have a “lost income” option. The Resolution (RPP) wording is the least attractive, being totally based on “hours worked”, and I would not recommend it.
