TPD a higher hurdle to pass
New Zealanders are more likely to have a total and permanent disability claim turned down than other types of insurance – but claims are still accepted at much higher rates than across the Tasman.
Tuesday, October 18th 2016, 6:00AM 
1 Comment
by Susan Edmunds
Graeme Edwards
An inquiry by the Australian Securities and Investments Commission (ASIC) has found that some Australian life insurance companies were declining up to 37 per cent of total and permanent disability claims.
Insurance companies said the situation was different in New Zealand.
Graeme Edwards, of AIA, said 96% of his company’s claims had been accepted so far this year, although more TPD claims were declined than some other types of policies. The rate of decline could run to 10% to 15% at most, he said.
“We do see lower volumes of total and permanent disability (TPD) claims and the decline rate for TPD can be higher as the definition is a high test to meet. Essentially the client will need to prove they neither can, nor ever will be, able to work in their own or any occupation, depending on which they chose for their policy,” Edwards said.
“Monthly disability products will also have an ‘own’ or ‘any’ occupation definition, but total and permanent are not requirements under the wording... With TPD you are not only looking at just the now, but also into the future, and many disabilities can be managed with the right treatment and rehabilitation.”
Sean Butler, of Fidelity Life, said the Australian situation seemed extraordinary.
“I can’t speak for the other providers but Fidelity Life pays around 97% of all claims, with only a small portion of the remaining 3% being for non-disclosure, the rest for not meeting the claim criteria - claiming for something not covered in the policy. My sense is that the other providers would be up in this region as well.”
Former AIA boss David Whyte, said, in Australia, many super funds and platforms would carry death and TPD cover as part of employees’ compulsory super contributions. “It follows that there is a far greater presence of TPD cover in Australia per head of population. Claims incidence here would be lower and so would declinatures.”
Former chief executive of the Financial Services Council Peter Neilson said there were no formal records kept of decline rates.
“One industry executive told me that TPD is almost ‘living death’ - you are alive but totally dependent on the support of others. I would always recommend someone should take out much wider income protection cover than a TPD policy alone as they are only for almost total loss of bodily functions. TPD claims are for very rare but totally devastating events and are unlikely to cover most circumstances when someone is unable to earn an income. “
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It is incorrect however, to think TPD only pays benefits in cases of 'living death'. Good TPD policies could pay for relatively less serious medical conditions, such as losing a thumb and a couple of fingers which results in an inability to perform work duties. Good TPD policies could also pay benefits for loss of use of two limbs even if this does not impact on ability to work. I expect the person who now needs to drive their wheel chair under their desk at work appreciates that!
It is also a mistake to think TPD is less valuable as a result of higher claims declines. Never being able to work again is a massive financial risk, bigger even that death in some cases. Effective cover for the full financial costs of permanent disability demands a level of TPD (in addition to any income protection).