COVID-19 is sweeping the globe. It is likely to affect all
of us, possibly physically, but probably financially. But
that's what insurance is for, right? Well, maybe
In this article we canvas COVID-19 issues with personal insurances; Travel, Health, Life and Income Protection Insurance. Remember insurance policies vary greatly, with the devil often in the detail, so we can only offer generic comments in this article. If you have any questions, or need advice, give us a call.
Travel insurance covers travel losses including medical expenses, cancellation costs, luggage and extra benefits including personal liability cover.
The NZ Government has closed our borders. It is advising New Zealanders to avoid non-essential travel overseas and urging Kiwis overseas to return home as soon as possible.
Travel policies can be long and complicated. Whether your insurance will meet cancellation and travel disruption costs if you can no longer travel or meet your medical expenses if you contract COVID-19 overseas may not be immediately obvious.
The key is that travel insurance only responds to unforeseen events. Most insurers' position is that COVID-2019 became a foreseeable event after 31 January 2020. So, if you bought your trip and travel insurance before 31 January 2020 you may have cover for cancellation, disruption or medical costs (subject to the exclusions discussed below). However, if you bought your trip and travel insurance after 31 January 2020, particularly if you are yet to travel, you probably won't have cover for any COVID-19 related claims.
COVID-19 is also likely to trigger some common policy exclusions. Obviously, any epidemic or pandemic exclusion will bar any COVID-19 related claim arising after 12 March 2020 when the World Health Organisation (WHO) declared COVID-19 a pandemic. This will exclude medical expenses claims, as well as cancellation and disruption claims, so travel to places like the US where insurance can be a pre-requisite to medical treatment is risky.
Travelling against the Government's recommendation or advice is also commonly excluded. So, now that the Government has advised against non-essential travel, embarking on a trip is unwise.
Exclusions for cancellation or disruption costs due to regulation by any government or government authority (which can include border closures and quarantine or "self-isolation") may exclude a claim, particularly for travel disruption costs, particularly with countries like Italy and Canada closing their borders.
Remember, if you do need to cancel your trip, the first thing to do is contact any airlines or other organisation you have pre-booked with and discuss refunds or rearrangement.
COVID-19 is a rapidly developing situation. If you are considering travelling, it is important to keep abreast of the WHO and NZ Government's announcements (www.safetravel.govt.nz). Read your travel policy and if you need advice, seek it.
Depending on the insurer, there will be differences in the scope of the risk underwritten. Also, your terms of cover will be tailored to you as a risk, so it is important that you check the schedule of your policy and any endorsements. Further, the standard terms of health policies can and do change regularly, so make sure you check the most recent version of the policy wording. If you're unsure, request a copy from your insurer.
Generally, private health insurance policies do not usually respond to ICU care/hospitalisation for acute sicknesses/critical care, as would be required for severe cases of COVID-19. Our public health system usually foots the bill in these cases.
As with travel insurance, exclusions for officially recognised pandemics exist in the market and will exclude COVID-19 related claims arising after 12 March 2020. We also expect that there are already changes to the standard wordings offered by many health insurers, and that policies that incepted after 31 January 2020, have already been endorsed to exclude COVID-19.
Despite this, the plain fact is that no one is improving as a health risk for an insurer as they grow older. So, as a general rule, it is not wise to change health and life insurers if you have pre-existing cover, unless there are very compelling reasons to do so (such as prohibitively high premium increases). Changing health insurers to avoid COVID-19 policy limitations (even if it were possible) is probably not a good idea.
Income Protection Insurance
We expect that most existing income protection policyholders have cover for loss of income as a result of a period of COVID-19 incapacitation, although again, each insurer's offering will be different.
It is also important to note that these policies usually have 'stand-down' or 'wait' periods before benefit payments commence. These are usually about three months. Given what we know about COVID-19, it would be reasonable to presume that most insureds would have completely recovered and returned to work before they were eligible for benefits.
If benefits are payable, they are usually either an 'Agreed Value' (which is a set sum), or 75% of the insured's earnings in a 12-month period selected in the preceding three years.
The triggering event for a life benefit to be paid is the death of the life assured. Again, policies issued after 31 January 2020 may contain an exclusion for C-19, but policies in force prior to that date should be unaffected.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.