Coronavirus & Life Insurance , Serious Illness & Income Protection …Some nuances to be aware of..
The coronavirus is causing serious disruption to everyday life across the world with many people waiting in trepidation for it to strike them, their family and their friends. Sadly, it is going to take weeks and months to fully disappear but it will as can be seen in the experience of China where it is slowly abating with no new cases in the last two days.
It is as times like this that people naturally look to see what financial protection they have got in place to help insulate them somewhat from the financial turmoil that follows in the wake of the virus. Correspondingly it also acts as a significant catalyst to those who were light on the financial protection side, to look hard at what cover they can afford to put in place quickly to mitigate against the financial implications of the virus for them, their family and even their business.
Here is a run-through on both the possible implications of the coronavirus on life insurance policies as well as advice on some of the ways you can put in place financial supports via certain policies to protect your family and livelihood.
For simplicity, it is also important to state that the coronavirus is unique and therefore is not classified by all the Irish life companies as any of their designated illnesses that would be covered under their serious illness policies for example. However, many of the repercussions of it are as we will touch on later.
We will look at both the business and personal sides separately…
If you are a business owner, one of the most important policies to have in place is Keyperson cover. This is where a business is insuring itself against the financial loss it would suffer if a key person in their business died or was diagnosed with a specified serious illness if that option was also chosen, during the term of the policy. With the coronavirus spreading rapidly we have already seen how badly affected certain swathes of the economy ( retail, hospitality, sport, etc) have become and its effect on the people working in them could be even more severe health-wise particularly for those unfortunate few with underlying health issues. In the very worst circumstances, the virus can kill as we can see all too well from Italy and in this tragic scenario the key person cover would, of course, payout and enable the business to survive the death of a key employee be they the founder, company director or an important worker.
If the company had added serious illness to their key person cove, this may also be able to trigger payment of the amount insured for but only if certain conditions play out that arose from getting the Covid-19 virus e.g. if one fell into a coma as a result of it. Unfortunately, Covid-19 in itself is not a defined illness under a specified or serious illness contract so once you get it and you have such cover in place- it does not mean your policy is triggered and a payment ensues.
Similar to key person cover, in a worst-case scenario where death ensues – a co-directors cover policy will payout. Co-director cover is also a business-specific life insurance policy that provides financial compensation to a company if one of their directors passes way. How it typically works is that it gives the company a lump sum which it then uses to buy back the relevant directors shares in the company thus ensuring the family of the deceased director gets a large lump sum that will help them financially. In addition, it ensures no disruption to the running of the company by ensuring the shares stay in the hands of those who are experts at running it.
With the likes of co-directors cover, payouts for the Covid-19 virus are typically on death – Income Protection ( also known as Permanent Health insurance) is much more flexible. In short, if you are diagnosed with coronavirus and meet the definition of disability after the normal deferred period, you will be able to submit a claim. However, the length of the deferred period is critical as many policies tend to have long deferred periods (e.g. 13 weeks, 26 weeks & 52 weeks) as they cost a good bit less than those with shorter deferred periods i.e. 4 or 8 weeks. Thus, if the coronavirus strikes you down and you are out of work for 4 weeks and your income protection has an 8-week deferred period – you cannot claim. Most company income protection schemes also tend to typically have deferred periods of at least 13 weeks plus which won’t be of much solace to employees who succumb to Covid-19.
Like the business side, in the tragic event of death from the coronavirus, any individual who has life cover in place, can be assured that their family/dependents will get a lump sum payment. With only 1 in 4 people in Ireland having any kind of life insurance in place, most people will not have cover that could financially protect their family and loved ones should they pass away. Thus, the unexpected and unwanted arrival of the Covid-19 virus on our shores is a timely reminder to people how important and prudent it is to have life insurance in place. Given the ‘wartime spirit’ that is being invoked everywhere, the words of one Winston Churchill, are particularly apt here….
" If I had my way, I would write the word “insure” upon the door of every cottage and upon the blotting book of every public man, because I am convinced, for sacrifices so small, families and estates can be protected against catastrophes which would otherwise smash them up forever.”
Serious Illness and Income Protection also mirror what we alluded to on the business protection side. With serious illness whilst Covid-19 is a not a named illness on policies for serious illness cover – if one was unlucky enough to get it and further complications ensued e.g. it caused you to fall into a coma. Then you can indeed trigger the policy and get a lump sum payment to reduce your health and financial headaches.
Income Protection will also kick in as soon as you are over the deferred period so in these circumstances you are hoping that you went for the shortest deferred period (4 weeks) when you took out the policy. Alas, like the present discussions on a government, most individuals have to wait weeks for their cover to kick in as they chose the longer deferred periods (13, 26 & 52 weeks) to keep their premium costs down. This is very understandable but it reinforces the need for those with families and dependents to get income protection cover in place and ideally with the shortest deferred period.
Whilst many may feel the horse has bolted already, it is never too late to put appropriate life cover in place be it to pay out on your death, pay out in the event of serious illness or protect you against losing your income if you become ill and are unable to work.
Life insurance, serious illness cover and income protection are not the most exciting topics for discussion to put it mildly and as you get older their cost also rises. However, in times like these, many of us wish we had put these policies in place as their monthly or annual costs will be far outweighed by the sizable lump sums and regular incomes they pay out if you are unlucky enough to be flattened by an illness such as the Covid-19 virus.