Home – New Forums Get productive Buyer beware: Income protection insurance

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  • #979533
    Carol in Melbourne
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    Hi all,

    This is a ‘don’t let this happen to you‘ note.

    I’ve had income protection since 2001.

    I started the insurance at the suggestion of a bank manager/financial planner. I was taking out a mortgage and he strongly suggested I needed insurance to protect my income (and therefore his mortgage payments).

    Forward 11 years and I need to claim.

    The company is not disputing the claim however they are calculating the benefit due as 75% of half my monthly wage (half because I’m claiming partial disability – I can work half days) less any profits made by the company that month.

    I am one of two directors in my company, so this means that – stay with me here – based on an ‘average’ monthly profit, I won’t be paid a benefit because my half of the profit made by the company will be roughly equal to the benefit payable.

    How is that income protection?

    I haven’t changed the way that I earn money, nor the way the company bills since I took out the policy. I am a PAYG employee, paid a regular monthly wage.

    I cannot identify what I missed in the policy, infact the definition of monthly earnings is ‘If the Insured Person owns any part of a business, Monthly Earnings are the normal monthly income of the business due to the Insured Person’s activities’.

    The only way to be paid a benefit is to run an unprofitable business.

    I’m lodging my complaint with the Financial Ombdsman Service, and I strongly suggest others check their policy – or get someone learned to check it for you, because the one I’ve got (which is titled a Income Protection) is close to worthless.

    Happy to provide further details …
    Carol

    #1115002
    Past-Member
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    Sadly, income protection insurance does not seem to help those who are in genuine need.

    As a sole trader I am not entitled to any income insurance because I don’t have any regular income – hence they can’t agree on a benefit.

    And, then my husband who is an employee in his own company, is not entitled either. The reason? He is too old. He is 71 and has been ‘too old’ for income and some other work insurance for many years. As he is working full-time that is ridiculous. Hence he is to never get sick nor have an accident.

    Working for yourself is difficult whether you are solo, or an employee in your own company. These are the challenges that many government departments and insurance companies do not understand nor allow for.

    #1115003
    JacquiPryor
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    Hi Carol,

    Thanks for posting this. I’ll certainly be checking out my policy! I’m the same as you – am an ’employee’ of my company so receive a set wage in the exact same way I would if I were employed by someone else’s company; I don’t take the company’s profits (whether or not ‘technically’ they would be mine…) but, the company has it’s money and I have my wage. A company is a legal entity so I’m surprised that they could deem its profit as your income.

    What interests me, is the language (and therefore possible interpretation of) ‘If the Insured Person owns any part of a business, Monthly Earnings are the normal monthly income of the business due to the Insured Person’s activities’.

    Do they define “business” in your policy? You might be able to argue that you own a company, which is different to a business (sometimes) – if you were a sole trader or in a partnership operating a business then such business income is actually your personal income. This is not the case with a company, which, as noted is an entity in its own right. I’d be interested to hear how you get on with this!

    #1115004
    Carol in Melbourne
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    Hello Jacqui

    deem me self employed because as there are only two directors, the business income is deemed to be derived from our personal exertion.

    Interestingly they go onto to explain: “We understand for other purposes such as tax and superannuation you may be classified as an employee”.

    Another thing to watch out for: read the definitions and don’t assume the set of criteria the rest of the world uses to define ’employee’ is the same as use … they completely ignore corporations law and a company being an entity.

    #1115005
    JacquiPryor
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    Hi Carol,

    You’ll notice that the FS mods will be around to remove bank name from your posts – best we continue with references such as “The bank”, “they” and equally generic terms :)

    Like I said, will be checking out my policy. I reckon there has to be some way to dispute their interpretation, or, challenge it. My fingers are crossed for you that the Ombudsman can assist or at least provide a better explanation – that certainly doesn’t sit right with me, whether you are one of only two directors/employees or not. I’m the sole director of my company so yes, I ‘work for myself’, but technically I’m employed by Company Name Pty Ltd.

    Sounds a bit like having their cake and eating it too doesn’t it? Yes, we know the company is a legal entity for X, Y, Z purposes but it’s not a separate entity for our purposes.

    I wonder – do you have company AND personal accounts with the same bank? Do they charge both the company and yourself fees, or just the company? (I’m tipping both…) – So, surely if you have to count your company profits, then the fees charged to any company account should also count as your fees on personal accounts?

    In any event, please do keep us posted!

    #1115006
    Greg_M
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    Don’t you just love banks, once you peel back the marketing layer they’re all the same.

    Slightly off topic but it may be something to consider. I was under the impression if you’re an employee of your own company you’re entitled to cover under the Co’s workcover policy, which is a statutory requirement if you have employees (certainly in Vic).

    I know it’s not the same as 24/7 personal insurance but at least you’re covered for anything (sickness and accident) caused directly or indirectly by your employment, including while traveling to and from same.

    This was one of several reasons I incorporated, so I had at least part of my risk covered because as previously mentioned no insurance company will touch someone my age, certainly not for an affordable premium.

    When I was working on sites full time I have had this type of private cover and my experience and those of other subbies I’ve worked with is that most policies of this type are crap (whether it’s through your bank or not), any sense of implied income security is far outweighed by the premium cost, maybe the premiums are better in lower risk industries?

    I certainly hope you can win the argument … they’re always so convincing when they sell too you, shouldn’t have to engage a QC to check every time you sign a document in good faith

    #1115007
    Carol in Melbourne
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    … not off topic at all estim8, it’s a valid suggestion.
    If I did claim on my Co’s workcover policy, my workcover premium would increase, and (indirectly, through the company) I pay that, so it would only be a short-term win.

    #1115008
    Greg_M
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    Damn … you’ve just poked a hole in my plan to claim stress related illness, caused by my mongrel boss. :)

    #1115009
    Cjay
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    For the most part, bank products and policies are designed with what we refer to as ‘little boxes’ in which they like the categorise people, and they market products to these people as such. In many cases, this means that the policies, procedures and products aren’t quite the right fit for you. Banks have a pretty bad time at providing services for self-employed individuals especially!

    I do offer ALL my clients a quote for mortgage protection insurance, which has an intial 12 month income protection insurance calculated at 1% of the initial mortgage size (or higher or lower depending on your choice of premium level) up to $2500 a month. Not a huge amount, but it provides a safety net. Why do I do this? Yes I do get paid a commision if my client takes out this policy, but it really is barely worth my time. I do it so later down the track, if a client gets sick and heaven forbid, passed away, I know their family/loved ones etc won’t be put in undue financial burden. And our little old friend the NCCP Act requires that all lending authorities discuss how they would deal with such circumstances, or suffer being raked over hot coals, fined, sued and many other fun consequences.

    That’s just the other side of the coin. :) Being self-employed and looking for IPC, I would think an independent financial broker specialising in insurance may be able to provide you with a more tailored policy, than the Big 4 or their little friends. :)

    #1115010
    Divert To Mobile
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    Its a shame you were sold this product before the financial services reform act was introduced. Your policy would have been renewed annually so you might be covered – Im not sure.

    Its been a while since I studied this but there was a “know your client rule” which meant an advisor could only suggest products which were of justifiably of benefit to you in your situation.

    An enquiry with the financial ombudsman service would shed light on weather the institution has done anything wrong and you could be compensated.

    good luck.

    Steve

    #1115011
    relentless
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    this is why I’ve never liked insurance. The only way for an insurance company to profit is by increasing sales and reducing the amount of approved claims, ie not helping their customer.

    I always believed that our clients pay us and we provide the service and the client’s benefit, so it’s a win win. It’s not we gain more by not helping our customers!

    #1115012
    Carol in Melbourne
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    Divert to Mobile – yes, my coverage has been renewed annually, and I am fully paid up and covered.

    Now, when I need to claim, I find out ‘they’ will only pay out if my monthly P+L doesn’t show a profit.

    And yes again, the complaint is registered with FOS. I’m requesting a full refund of 9 years payment of premiums on the basis of misleading product name ‘Income Protection’ – so not.

    And relentless, Insurance is a necessary evil. I don’t mind paying for a service, but in this case I was sold a lemon – I honestly don’t know how who this policy would benefit.

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