Most retirement funds offer disability benefits to their members. Typically this would be an income replacement benefit in the event of the member experiencing a reduction or loss of income as the result of injury or illness which will be paid for as long as the member experiences such reduction or loss of income and until the member passes away or retires, whichever occurs first. Sometimes funds also offer a once-off lump sum that will be paid when a member becomes totally and permanent incapable of pursuing any occupation for gain anymore for the remainder of his life.

Over and above the disability benefits a fund may offer its members, many members also have disability cover in their own capacity, either as an add-on to their life insurance policy or as a stand-alone policy such as PPS.

What will happen in the event of disablement – will you be able to put in a claim against each policy and if you are insured well will you be better off after disablement than you were before? One thing is for sure, if it would have been possible to ensure yourself to a level where you would be better off after disablement than before, we would see many more people claiming to be disabled. Insurance companies still experience a significant increase in claims in tough economic times and this is despite all the means at their disposal to verify the legitimacy of the claims.

Insurance companies have realised that it would be unethical to collectively insure a person to a level where a person would earn more after disablement than before disablement. A basic premise of any insurance is also that the insured must have an interest in the insured event not happening – an insurable interest. Clearly, the prospect of earning more after disablement than before disablement would be contrary to this principle.

Insurance companies therefore have a mutual arrangement that an insured cannot be better off after disablement than before disablement and for that purpose information on claims is exchanged between insurers. Where a claim for disablement arises and the disabled enjoys cover under different policies, the insurers would in aggregate never pay the claimant a benefit that exceeds his income prior to disablement. So if you have two policies both covering you against any loss of income and you experience a total loss of income, each insurance company would only pay you 50% of your loss of income.

The inference of this arrangement between insurers is – do not over-insure yourself as you will not reap the ‘benefit’

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.