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Tips for Protecting Your Family's Future & Home

How are your finances post-pandemic?

Here are some suggestions you can focus on to bring more confidence back to your financial life

01
Rebuild your Emergency Savings Fund

If your home deposit or your pandemic response came from your savings, you may need additional protection while building them back up, so check your Income Protection insurance has a low claim waiting period.

02
Mortgage repayments are just the beginning of a spending budget

Be sure to plan ahead for repeating expenses such as council land rates & strata fees, utilities, and maintenance costs.

03
Lenders shy away from credit histories showing Pay-Day-Loans at refinance time

Should you ever need to refinance, banks consider a history of pay-day loans or credit card cash advances as a negative; so try not to use them in the 6 months before an application to refinance a mortgage.

04
If you can make additional loan repayments, do so

Most modern mortgages allow for additional repayments and many have an Offset Account so be sure to learn about these.

05

Have a goal of getting 3 months ahead in mortgage and loan repayments, then extend that to 6 months

Nothing feels as safe as being ahead in mortgage and debt repayments.


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What is Severity Based Insurance (SBI)?

Why spend your life contributing to an insurance policy that pays out once, when life is a series of events to be navigated while you live?

Severity Based insurance (SBI) is a higher-grade alternative to the traditional 'all or nothing approach' to traditional separated Life, Crisis/Trauma and TPD insurances. Unlike most traditional life insurance policies, a SBI policy combines traditional Life, Total & Permanent Disability and Trauma Insurance products into one simple alternative, designed to last you a lifetime, not only for a single claimable event. Unlike many policies, a SBI policy is designed to allow multiple claims over the lifetime of the policy based on the severity of the health event – the more serious the condition, the greater the benefit.

Because medical and pharmaceutical breakthroughs have made groundbreaking advances in health, today most people who get sick or injured can have an expectation of recovery - if they just get that additional support from their insurance company early when they initially need it.

  • These medical advances provided the motivation for the creation of an equally advanced insurance product – fairer and faster – the new Severity Based assessment process that aims to pay claims sooner and in proportion to the need, as assessed by an external medical standard.

Using an expectation of recovery, it makes claim payments based on the level of impairment a person might suffer.  This means claim payments can be made sooner for partial claims and money can be made available for early treatment and rehabilitation. This is different from the traditional TPD and Crisis insurance products that are known more for a black-and-white approach - where people might have an early cancer diagnosis but have to wait until it develops into a more serious condition before they might qualify to make a claim on a Crisis policy.

How is Severity Based Insurance different from traditional Crisis/Trauma and Income Protection insurance policies?

Most traditional life insurance policies are designed for one event in a lifetime – with limited parameters for making a claim.

  • With advancements in modern medicine, people are much more likely to survive a serious illness. However, as a result, they’re more likely to suffer a recurrence or secondary illness. And as we live longer, we’re more exposed to illnesses in later life.
  • SBI covers more medical conditions – and pays claims earlier, according to severity, as assessed by an external medical standard. And, you can keep claiming on any remaining cover if needed.

How does the Severity Based Insurance approach (SBI) work?

  • SBI works on the classification of the health condition a person may face, not the type of occupation they may hold.

SBI follows an independent medical 'level of impairment' test to avoid the old subjective standard of 'in the opinion of a doctor, are you likely to return to work ever?'.

This new medical approach to assessing the level of impairment when assessing a claim means;

  • the ability to make multiple claims,
  • a higher likelihood of claim payments for partial conditions and disabilities and
  • early diagnosis claims.

A big benefit to a person making a claim

Taking a medical approach to assessing a person's degree of physical and health impairment removes the fear of insurance company Doctor Shopping for a more commercially favourable medical opinion at the time of claim and increases transparency to match the ways Centrelink disability assessments are conducted.

Comparing Severity Bases Insurances with Traditional Life Insurance products

comparing traditional life insurance products with the new severity based insurance framework

What are the major differences between traditional TPD and Crisis insurance products?

Earlier claim payments

  • A key feature of SBI is the ability for people to access the financial benefits of the coverage during the initial onsets and lower thresholds of Crisis Health Events.
  • In practical terms, this means people are more likely to receive a claim payment for less severe health events which can still have significant financial consequences.

Payments for conditions not covered by traditional Crisis policies

  • An example of this may be Myelodysplastic Syndrome and other cancers that often are an initial indication of a more serious condition pending.
  • While traditional crisis and trauma policies cannot pay if their definition of cancer does not extend to this syndrome, SBI often can pay a claim under a disability assessment model rather than a definition-only model.

For the most serious conditions, SBI is designed to pay out the full sum insured, giving the peace of mind that your client is covered.

Using a severity-based insurance approach creates greater certainty when you need it - greater transparency about the claims assessment when you expect it.

Pro Insight: In reviewing the claims history of severity-based insurance claims, approximately 24% of SBI claims made would not have been paid under the traditional Crisis or TPD claims products.

Severity Based Insurance claims experience

So what's covered?

A Whole Body System Approach

SBI usually classifies the body in terms of body systems rather than the black-and-white sickness or injury approach where you might be sick but not sick enough to claim.

Crisis Health Events

  • SBI Crisis Health Events are usually divided into five major categories with higher benefit payments made for more severe conditions.
  • Death and Total and Permanent  Disability (TPD) is classed as the highest severity and all others on a lesser percentage basis.

An example of this body system approach and its underlying conditions can be better explained below by looking at the range of Crisis Health Events that can be claimed for.

Who should consider using Severity Based Insurance?

There are two types of TPD insurance policies to consider:

  • Traditional insurance - it takes a contractual definition of impairment of being unable to continue to work in either your Own Occupation or Any Occupation, and
  • Severity-Based Insurance (SBI) - takes a medical definition of impairment of being unable to continue to work.

When comparing apples and oranges we have challenges but simply said;

  • SBI policies pay out on medically defined levels of impairment, up to the capped amount the policy has been set at
  • Traditional policies pay out upon meeting a definition specified in the contract issued by the insurer, usually the full capped policy amount. (see the second sample at $1,000k)

How are the two different types of policies assessed at claim time?

The Traditional insurance policy uses one of two assessment definitions.

  • Own Occupation definition of impairment (where they pay if you cannot perform your own occupation -or something substantially similar you are educated for), and
  • Any Occupation definition of impairment (on a claim, if they can retrain you to a lesser job they will try).

There is a third definition of cover reserved for the lower grade policies (often provided by a super fund) called Modified Definition TPD and this is usually coupled with a payment structure similar to a drip feed pension, rather than a single lump sum payment from the Traditional version designed to allow you to make a significant lifestyle adjustment if required.

Take Aways

Severity Based life Insurance products are widely available throughout Asia, Africa, Europe, and North America and are recognised as being an innovative insurance product more aligned to the evolving nature of modern medicine and health.


How we can help

Severity Based Insurance cover is an alternative to traditional Crisis and TPD cover and provides greater flexibility as part of protecting your business and your family, from the business.

Contact us for a confidential chat about your needs.


Related: Types of Personal Insurance products we work with

Different types of risk protection insurances, provide protection for different life risks.

Childrens Critical Illness

A sick child is a family problem. Lighten the financial load a serious illness or injury can have on a family caring for a sick child so you can focus on your child getting better.

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