Income protection and pre-existing medical conditions

About the author William Eve is a personal finance writer for finder.com.au specialising in content on insurance. While he cannot give personal advice to clients, Will enjoys explaining the intricacies of different types of protective cover to help individuals and businesses find affordable cover that won't leave them underinsured.

What is a pre-existing medical condition?

While the definition of a pre-existing condition can vary, it generally refers to:

• A health condition that was diagnosed or investigated by a medical practitioner
• The appearance of certain symptoms leading to a diagnosis
• A condition that triggers the event of an income protection claim
• Occurred prior to the commencement or reinstatement of your insurance policy

Common pre-existing medical conditions that can affect your income protection application

Obtaining an income protection policy with a pre-existing medical condition is not impossible. However, bear in mind that certain conditions will affect your premium rates and depending on the severity of your condition, it may result in your application being declined.

Some examples of pre-existing medical conditions include:

• Cancer. If you are a cancer survivor, your insurance provider will want to obtain specific information of the type of cancer it was, the staging when you were diagnosed, the treatments you took and results of any follow-up checks. In all cases, you will be required to undertake a medical exam, provide a medical attendant’s report and fill out a health questionnaire when you apply for income protection.
• Diabetes type I and II. If you suffer from either type I or type II diabetes, you will be required to undergo a medical examination and provide a doctor’s report to your insurance provider. You will also have to complete a diabetes-related questionnaire to provide the insurer with more information on whether or not you understand the condition and are cooperative with your doctor. If you have had your condition for a number of years since diagnosis, you can expect to pay a premium loading.
• Epilepsy. You may pay higher premium rates depending on the type of epilepsy you have: Idiopathic, symptomatic or focal.
• Heart related conditions. If you have a heart condition, your insurance provider will want to find more information on whether or not the condition is treated, responsive to treatment or if it is malignant. You will be required to undertake a medical examination and a blood pressure related questionnaire sent to your doctor to complete. A heavy additional loading is applicable to your premiums if your condition is considered to be severe.
• Hepatitis. A declaration of hepatitis on your application will prompt your insurance provider to carry out further investigations. Depending on the type of hepatitis, whether or not it is a single attack, if you have had a full recovery and it was more than two years ago since it occurred, you may be eligible for standard premium rates when you apply for income protection.
• Mental illness. Mental conditions such as depression, anxiety and bipolar disorder are difficult to assess by insurance providers due to a variety of forms, degrees of severity and its unpredictable nature. A medical attendant’s report will always be required in this case.
• Sleep apnea. If you have a history of sleep apnea, your insurer will request for more information on your condition and a detailed medical attendant’s report. In some cases, you may be required to complete a medical examination. Depending on the severity of your condition, a high premium loading may be applicable or your income protection application may be denied entirely.

Income protection and critical illness insurance: What’s the difference?

While both policies provide cover for serious illness and injuries, there are a number of key differences between the two that you may need to be aware of.

Benefit type

Income protection is designed to provide a monthly replacement income of generally up to 75% of your salary in the event that you are unable to work due to a serious illness or injury. Critical illness insurance, on the other hand, provides a lump sum benefit payment as a form of financial buffer that the policyholder needs upon the diagnosis of a serious medical event (as covered in the policy).

Purpose of cover

Should you be temporarily disabled and unable to work, bills, rent or mortgage, debts and other payments will still pile up. Income protection benefit is based on your average earnings and provides financial relief should you need to lose work from illness or injury.

Critical illness insurance benefit payments can alleviate the financial stress of any medical and hospital expenses, including rehabilitation, nursing care and home modification costs. You can even use your benefit payout to settle any debts you may have and take a holiday with your loved ones.

Note: Some insurers offer consultation from medical practitioners without any financial restraints.

Combined cover

If you have an existing life cover policy, you may wish to consider income protection as an additional standalone protection cover. Since life cover only provides a benefit payout if you pass away or have been diagnosed with a terminal illness, income protection can be beneficial to have as a replacement income for when you are seriously ill or injured and unable to work temporarily.

Alternatively, for additional protection against serious medical events, such as cancer, heart attack or stroke, you can opt to combine your existing life cover with a critical illness rider. Linking your life insurance policy with trauma cover is an affordable solution for obtaining comprehensive cover.

Is it possible to apply for income protection with no medical?

You will be required to complete a health check-up with most providers when you apply for income protection. This is to enable your insurance provider to obtain a more accurate depiction of your health and the level of risk that they are exposed to should they provide you with cover.

If you are looking to secure an income protection policy with no medical, you may want to consider the following alternatives:

Income protection from direct providers

Direct life insurance providers in Australia, such as Noble Oak and Zurich, offer income protection policies with competitive premiums with minimal medical underwriting. Even though you still have to go through a medical exam and complete a health questionnaire, there are generally less restrictions on the eligibility criteria with direct income protection application.

You can buy your income protection cover direct from the provider without needing to go through a broker. Your income protection policy will be activated as soon as you application is approved.

Income protection through super

You can obtain income protection, also known as salary continuance insurance, through your super fund. You may also already have cover in place through your employer’s nominated super fund, so it is best to clarify if this is the case. When you opt for your employer’s superannuation fund, you will be automatically covered for life cover, TPD and salary continuance cover, and you are not required to undertake any medical examinations. If you wish to increase your cover, you may be required to provide an additional medical report.

Keep a lookout for income protection policies with accident only cover for applicants with pre-existing medical conditions

Australian insurance providers continuously expand and improve their range of products on the market to suit applicants with different needs and circumstances. You can now purchase income protection plans that provide cover for accidents only, which allows greater accessibility for applicants who may have specific occupations and pre-existing medical conditions.

Income protection with accident only cover means that it will provide a benefit payment in the event that you are unable to work as result of an injury. It generally has less policy features compared to income protection policy with full cover for both illness and injury, so you can benefit from lower premium rates.

What other types of cover are available?

There are other types of cover that offer similar support similarly to income protection to consider and they may be suitable for applicants with a pre-existing medical condition:

• Personal accident insurance. Personal accident insurance provides up to 75% of your average income if you sustained an injury as specified on your policy. Some policies may also provide cover for accidental death.
• Sickness and accident insurance. Sickness and accident insurance is a short-term income protection cover that is offered by general insurance provider on a cancellable basis. It provides a replacement income of up to 75% of your salary in the event of an illness or injury and some insurers may also offer unemployment cover as an option.
• Accidental death insurance. Accidental death insurance provides a lump sum benefit payment should you pass away as a result of an accident.
• Mortgage protection insurance. Mortgage protection insurance protects your ability to meet your home loan repayments in the event that you are unable to work due to an illness, injury, redundancy, or death.

Why do you need to declare pre-existing conditions?

To ensure that your income protection policy is tailored specifically to your needs and condition should they provide you with cover, you need to be up front and honest about any pre-existing conditions you may have. If you withhold information from your insurance provider, they have the right to deny any claim that may arise as a result of your condition and refuse to provide cover.

With so many different income protection policies available in the Australian market, it isn't easy to determine which cover is most suitable to your needs. If you have a pre-existing condition, you should:

• Avoid ‘automatic acceptance’ or ‘no medical examination’ policies unless you are after a policy that won’t cover your pre-existing condition.
• Consider speaking to an insurance adviser who can provide tailored recommendations based on your specific needs and requirements. An insurance consultant can minimise the time and effort required in securing an income protection policy, especially if you have a pre-existing medical condition.
• If you don’t want to use an adviser, consider a direct insurer who offers a detailed medical questionnaire upfront. Although it takes longer to get cover there is less uncertainty at claim time.

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