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Income Protection Disability Definitions

The importance of how your Income Protection Insurance Policy defines disablement

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By Andrew Clark

Many people would not be aware of how widely the definition of disability can vary from one income protection policy to another and how this might play out in the event of a claim.

Broadly speaking, some policies define disability relative to how your injury or illness affects your ability to perform occupational duties. This is generally referred to as duties-based disability definition.

Other insurers offer an income-based disability definition, measuring the impact of your disability on your income- earning capacity.

There are also some insurers that use a combination of both income-based and duties-based methods to determine whether your situation forms the basis of a claim.

Duties-based disability definitions can also be broken down into those that refer to your specific occupation (own- occupation definitions) or those that base your claim eligibility on whether you can perform any other occupation that you are reasonably suited by education, training and experience (any occupation definitions).

Make no mistake, the wide variations in the disability definitions under competing income protection policies means that, whilst one company may consider you to have a claim, you may not meet the definition of disability under another insurer's policy.

This is because income protection policies are usually conceived by an insurer with a particular market segment or competitive niche in mind, not because the companies are trying to avoid paying claims. 

But if the policy wording does not require the insurance company to pay, then they most likely won't. Not in the long term anyway.

Remember, these definitions are not arbitrarily decided at claim time, they are predetermined in the policy that you purchase.

You need to consider what is most appropriate for you and understand precisely what your income protection insurance policy covers.

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