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
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.
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.
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.
- Life & Terminal Illness - the basis of all protection strategies
- Income Protection - safeguarding your ability to continue to earn your income
- Total & Permanent Disability (TPD) - protecting against the long-term financial consequences of disability
- Crisis & Trauma Recovery - protecting against specified serious medical conditions (more a 'when' you need to claim than an 'if')
- Severity Based Insurance - designed to pay small claims sooner (Life, Crisis & TPD insurances in one)
What is Total & Permanent Disability insurance?
A permanent injury or illness can make it difficult (or impossible) to return to work. TPD insurance can provide a long term financial safety net to help support you and your family, and pay for medical and rehabilitation costs.
TPD insurance pays a lump sum if you become totally and permanently disabled because of illness or injury and you cannot work in your usual occupation, or any other reasonably suited role because of a mental or physical disability, sickness or ill health.
- It doesn't mean you cannot work at all; it just means you are unable to perform your job that fits your experience, skill and ability.
How does Total & Permanent Disability insurance work?
Each insurer has a slightly different definition of what it means to be totally and permanently disabled.
It can cover you for either:
- Your own occupation — you're unable to work again in the job you were working in before your disability. This cover is more expensive and is usually only available outside super.
- Any occupation — you're unable to ever work again in any job suited to your education, training or experience. This cover is a little cheaper but has a higher threshold to claim, so it's less likely to pay out.
The lower-grade TPD policies have a Modified TPD definition. When provided by a super fund, this type of cover, rather than pay a lump sum upon a successful claim, are trying to introduce a yearly benefit payment (like an annuity) in an attempt to reduce lump sum payouts to claimants. We see many of these policies provided as default insurance cover inside an industry super fund. While the wording initially looks similar, the contract definitions, when you can find them, are restrictive and low-grade.
How would you recognise a lower-grade TPD policy? Sound confusing? It can be. That's why you need Sapience Financial.
Pro Tip: The higher quality cover can provide additional cover for Partial Total Disability claims and can make partial claim payments when needed.
Who should consider Total & Permanent Disability (TPD) insurance?
When deciding if you need TPD insurance, and how much, think about the expenses you'll need to cover if you were permanently disabled and unable to work.
- living expenses for you and your family - food, rent (mortgage repayments) and healthcare
- repaying debts such as a mortgage or credit cards
- medical and rehabilitation costs
- savings you want for retirement
Most people who take out Life insurance take out matching levels of Total & Permanent Disability (TPD) insurance.
Pro Tip: When thinking about what level of cover is right for you, make sure you understand the Numbers of Life (the statistical risks we all face and have to manage) and The Cost to Care (the approximate cost of treating major medical conditions and the expected out-of-pocket costs you may have to meet).
Frequently Asked Questions about Total & Permanent Disability insurance
What questions would an insurance company ask to those applying for a TPD policy?
An insurer will ask you questions when you apply for (or change) your insurance. These questions may be about your age, occupation, medical history, your family history (if known) such as a history of diseases, your smoking status, and about any high-risk sports or pastimes (such as competition BMX bike riding or skydiving).
If an insurer doesn't ask for your medical history, it may mean the policy has more exclusions or narrower policy definitions and may not provide the full cover available elsewhere in the market. That's why you need a Sapience Financial advisor to help you find the policy that's right for you.
What is the difference between Total & Permanent Disability Insurance and Income Protection insurance?
TPD insurance is designed to pay a 'single lump sum' payment upon a successful claim that can be used for major lifestyle modifications (or as needed). Income Protection insurance is designed to 'regularly replace a portion of your income' (and 100% of employer SG contributions) if you're unable to continue to earn an income.
- A TPD policy has a waiting period of 6 months and compensates for the loss of long-term employment capacity.
- Income Protection replaces a percentage of income each month till up to age 65, and the waiting period can be set as low as 14 days.
How do I make a claim on my Total & Permanent Disability policy?
If you have purchased your TPD policy through your Financial Advisor, your financial advisor will help you complete the claims process and walk you through the claims journey as your advocate. Beware legal firms and their marketing companies who would have you believe that every TPD claim needs a lawyer to be involved. If you meet a definition of a claim as disclosed in the insurance product disclosure statement (PDS), make a claim.
How we can help
TPD Insurance is a very important part of long term disability protection from the most serious of lifes risks helping you protect yourself, your family and your 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.
- Life & Terminal Illness - the basis of all protection strategies
- Income Protection - safeguarding your ability to continue to earn your income
- Total & Permanent Disability (TPD) - protecting against the long-term financial consequences of disability
- Crisis & Trauma Recovery - protecting against specified serious medical conditions (more a 'when' you need to claim than an 'if')
- Severity Based Insurance - designed to pay small claims sooner (Life, Crisis & TPD insurances in one)
Without your own financial advisor, if you need to make a serious insurance claim, who's there to help you?
Sapience automatically provides specialty claims assistance to all our personal insurance clients. We hope you never need to report a claim with us. But if you do, we'll help to make things better.
If you're our client and you or your family need to make a claim – there's a plan in place to help, and we’re here for you.
Sapience clients are Priority #1 in claims
Our claims assist service is called Priority #1. Our clients call it a promise kept – and it's routinely included in all our insurance advisory services for all our clients.
All personal insurance claims are different
Some insurance claims are straightforward like claiming on a life insurance policy.
- When you need to claim for a medical crisis, terminal illness, a sickness or illness covered by income protection or a longer-term total and permanent disability TPD - this can quickly become a complex and drawn-out process.
- Often numerous medical, psychological and pharmaceutical reports are needed to support a complex claim.
If your health history is one where you’ve seen multiple doctors, perhaps you’ve moved house, maybe the original medical records have been moved to offsite storage and historical documents are held at different medical centres (that have now either moved, combined or sold) – these realities add to the delays and uncertainty of an insurance claim.
A claim is never just about the money — it's also the acknowledgement and respect of the individual, closure, privacy and dignity (often for their family and/or business too) at a very difficult time in life.
If Sapience is already your financial adviser, relax – there's a plan in place for you when needed
We’re automatically here to help you and your family (whether that’s biological or logical) through the claims process should that ever occur so that your case doesn’t stall in some claims managers ‘too hard basket’.
Our claims history to date
We’ve overseen millions of dollars in claims for our clients so we know how to navigate through the life insurance claim systems and skillfully advocate for your best interests.
Pro Tip: Did you know that a Total and Permanent Disability (TPD) claim usually has an initial 6 months waiting period before a claim can be made? and that some claims start as partial payments as some degenerative health conditions like cancers, MS and Leukaemia often result in multiple claims needing to be made on the same policy over time?
Life Insurance companies are in the business of paying claims
Data from the Australian Prudential Regulation Authority (APRA) overseeing life insurance companies, shows for the year ending 30 June 2016, at least $8.2 billion in net policy payments were made by life insurers.
Pro Tip: People often mistakenly confuse general insurance companies with personal insurance companies. We describe the difference this way: general insurance is about things and personal insurance is about, well, people.
What happens if you don’t have a financial adviser and you need to make a claim?
When you need to claim on your personal insurance policy, people without a financial adviser can often feel underrepresented and vulnerable to a corporate system of red tape, delays and uncertain futures.
- To make things worse, if the nature of your claim means you now have limitations on reading, writing or communicating, the DIY process becomes further complicated and delayed. People with major head trauma or mental impairment find this the most difficult process to manage alone.
The solution is Sapience Priority #1 Claims Assistance service
Some people engage a lawyer to try and get their claim processed
Frustrated with the DIY approach, a potential avalanche of paperwork and uncertainty about how to practically manage a difficult personal situation, some people turn to a lawyer to lodge a claim for them.
- A lawyer's costs are often open-ended and usually incur the lawyer's hourly fee – (often charged in 8-minute increments).
What happens when the lawyers get involved?
Everything slows down...
When a lawyer submits an insurance claim on behalf of their client to a life insurance company, the claim routinely leaves the usual claims process and gets diverted to the insurance company’s internal legal team to manage.
These legal teams are usually smaller than their claims team, work slower and well – you can probably guess what this means for the speed of a claim payment.
- The increase in time triggers delays that then trigger more work for the client's lawyers
- which then translates to more expenses for the client and more frustration
- Often without a fair idea of just when the claim assessment might be finalised
This is probably not what you want at this time of life.
What happens when your Sapience Adviser assists with your claim?
First, we find and read the original policy wording to make sure we understand where you stand and what’s needed to prove the claim.
Then we can decide if we want to work together.
- Most people haven’t kept the best records so we then have to collect previously issued product disclosure statements
- We get your written authority to become the servicing adviser on your matter
- We start up an immediate conversation with the relevant insurance company and inform them of our ability to assist and expedite the matter
Our Priority #1 system then takes over the process and our team works with an agreed timeline shared with the relevant claims assessor and your medical professionals.
How do we get paid for the work we do?
If you're not an original Sapience client but would like to use our Claims Assistance Services, we charge a fee-for-service.
- We only get paid after you get paid. Our terms are 7 days.
- Our cost is a fixed percentage of the claims payment or a fixed fee – whatever is agreed to between us in writing.
- Our fees are fixed for completion of the service and we do not charge by the hour (we believe that to be unethical.)
What can people do if they don't have an Advisor?
So what can people who have purchased a policy from an online comparator service and have not advisor, do?
- Contact the relevant life insurance company, DIY and hope for the best, or
- Employ a solicitor to lodge and chase your insurance claim (and be prepared to surrender a third of your payout), or
- Contact the team at Sapience for our Priority Claims Assistance service to pre-assess your claim scenario to see if we have the current capacity to take on that work for you.
Why would you choose the Sapience Priority Claims Assistance Service?
Simple — When you draw upon a legal background and then combine that insight with 20+ years in specialist risk insurance services, you learn what’s needed and how to navigate around the different systems.
An insurance claim is for many of us just a difficult part of life. How we get past that part of life depends upon what we do to prepare for it today.
Put our significant capability into your personal situation and benefit from our expertise.
How we can help
Making a claim with a Life Insurance company is a regular process for an experienced financial advisor. That's why people prefer to have a professional relationship with a financial advisor to navigate the ever-growing complexity of insurance and protect and provide for their families and businesses - and make claims when required.
If you're looking for a personal insurance Claims Assistance Service or if you're a law firm looking to joint venture with a capable practice that understands the legal process, speak with us.
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.
- Life & Terminal Illness - the basis of all protection strategies
- Income Protection - safeguarding your ability to continue to earn your income
- Total & Permanent Disability (TPD) - protecting against the long-term financial consequences of disability
- Crisis & Trauma Recovery - protecting against specified serious medical conditions (more a 'when' you need to claim than an 'if')
- Severity Based Insurance - designed to pay small claims sooner (Life, Crisis & TPD insurances in one)
What is Crisis & Trauma Recovery insurance?
Simple: Recover First, Worry Less
Being diagnosed with a Critical medical condition impacts both you and your family. Critical Illness insurance can help take away the worry of having to cover your day-to-day expenses and sudden medical costs while you undergo treatment or recover from surgery.
The major risk to family financial health is medical bills
A lump sum payment when you need it most
Crisis & Trauma Recovery insurance can pay you a lump sum benefit payment to use as you see fit. Get the very best medical treatment in Australia, buy a place to live (or pay out the mortgage), hire an in-home-carer, pay for extended time off work, travel interstate for advanced care, modify a home or vehicle to support an illness while you recover.
We've seen clients with serious medical events use their lump sum payout to travel overseas and access advanced medical trials and treatments not yet available in Australia – whatever it takes to help them recover.
An emotional and financial surprise
Handling the emotions that come up when experiencing an unexpected and severe illness is difficult enough. Worrying about your financial stability on top of this can obviously be overwhelming.
- Surprise medical traumas usually involve unexpected (and therefore unbudgeted) out-of-pocket-cost as well.
- They can create an unexpected cash flow drain in the family budget and drain additional cash flow and focus from a small business owner too.
Managing the out-of-pocket-cost to care can even dictate the level of medical care many people are able to afford.
A Medical Crisis or Trauma can destabilise a family if not financially supported
A sudden medical event doesn’t just impact you physically – there are financial consequences as well.
- You may have to take time out from your job or reduce your working hours in order to recover.
- For serious conditions, your spouse or partner might be required to give up work to take on a caring role.
With Crisis and Trauma Recovery insurance in place, you can feel more financially confident and supported when faced with a surprise health crisis.
When do you need Crisis Cover?
You should think out Crisis & Trauma Recovery insurance if you:
- have a partner, family or dependants
- have a mortgage or any other personal debt
- have a business or you’re self employed
- would need money to live if you were unable to work, or
- don’t have adequate savings to cover unexpected expenses
- have a family history of serious health issues occurring later in life
What does it cover?
Many policies provide cover for 40+ specified health conditions described in detail in an insurance company’s product disclosure statements (PDS) - including stroke, cancer, heart disease, kidney failure and dementia.
Below are a sample set of Crisis and Trauma Recovery conditions that can be covered.
Crisis & Trauma Recovery insurance | Sample Insurable Events
Many medical Crisis events are categorised under the different body systems.
Cancers and tumours at the specified severity
benign tumour in the brain or spinal cord (with neurological deficit)
cancer (excluding early stage cancers)
Heart conditions at the specified severity
angioplasty (triple vessel)
aortic surgery
cardiac arrest (out of hospital)
cardiomyopathy (with significant permanent impairment)
coronary artery bypass surgery
heart attack (of specified severity)
heart valve surgery
idiopathic pulmonary arterial hypertension (with permanent impairment)
Severe accident, loss of sight, hearing, speech, use of limbs, paralysis, and loss of independence
diplegia (with paralysis booster payment)
hemiplegia (with paralysis booster payment)
loss of use of hands, feet or sight
loss of hearing
loss of independence
loss of sight
loss of speech
major head trauma (with permanent neurological deficit)
paraplegia (with paralysis booster payment)
quadriplegia (with paralysis booster payment)
severe accident or illness requiring intensive care (with mechanical ventilation for 10 consecutive days)
severe burns (of specified extent)
Neurological conditions at the specified severity
bacterial meningitis or meningococcal septicaemia (with severe life impact)
coma (of specified severity)
dementia including alzheimer’s disease (diagnosis)
encephalitis (with permanent neurological deficit)
motor neurone disease (diagnosis)
multiple sclerosis (with impairment level)
muscular dystrophy (with impairment level)
parkinson’s disease (diagnosis)
stroke (of specified severity)
Blood conditions
aplastic anaemia (requiring treatment)
medically acquired HIV
occupationally acquired hepatitis B or C
occupationally acquired HIV
Other covered conditions at the specified severity
chronic kidney failure (end stage)
chronic liver disease (end stage)
chronic lung disease (end stage)
diabetes (of specified severity)
major organ transplant (or waiting list)
pneumonectomy
severe rheumatoid arthritis (with permanent daily life impact)
Which Crisis or Trauma Recovery policy is right for you?
Some policies are more female health focused, while others are more male health focused. Some companies provide additional cover for children's crisis events while others use a Severity Based Insurance assessment framework that allows them to pay out sooner on smaller crisis events and recurring claims later.
Finding a policy that focuses on your specific needs, for example focusing on advanced dementia, is where Sapience Financial can help.
How we can help
Crisis and Trauma Recovery insurance strategies are an important part of protecting yourself, your family, and your business from the financial risks and out-of-pocket expenses a serious sickness or injury can bring.
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.
- Life & Terminal Illness - the basis of all protection strategies
- Income Protection - safeguarding your ability to continue to earn your income
- Total & Permanent Disability (TPD) - protecting against the long-term financial consequences of disability
- Crisis & Trauma Recovery - protecting against specified serious medical conditions (more a 'when' you need to claim than an 'if')
- Severity Based Insurance - designed to pay small claims sooner (Life, Crisis & TPD insurances in one)