Loss of Working Capacity insurance

One of the most important insurance policies to have is the Loss of Working Capacity insurance. While life insurance helps maintain our standard of living after losing a breadwinner, Loss of Working Capacity insurance provides coverage for the loss of significant monthly income due to disability. There are various ways to obtain this insurance, such as through a pension fund, executive insurance policies, or independent purchase. In a pension fund, the level of disability coverage and monthly income coverage for beneficiaries (such as widows/ers and children under 21) is determined by the monthly deposit made. However, it's important to note that the definition of a pension fund claim is often broad and general, which can lead to the rejection of future claims. All pension funds typically use a definition of "reasonable occupation" based on an individual's education and experience. This definition allows insurance companies to reject claims by arguing that the individual could have pursued a different career path. To prevent such situations, I recommend purchasing an umbrella insurance coverage. Umbrella Insurance, also known as Excess Liability Coverage, allows you to upgrade the definition from "reasonable occupation" to a "specific occupation" that corresponds to your current position. By defining a specific occupation, you reduce the risk of future claim rejections and ensure that the insurance company cannot avoid payment. Another advantage of a pension fund is the ability to join default funds and some regular funds without a health declaration, with a qualification period of 5 years. This means that after 5 years, you are fully covered for disability and beneficiaries, including pre-existing medical conditions. Umbrella insurance also enables you to bypass the 5-year qualification period without any waiting time. It further reduces the waiting period for loss of working capacity payment from three months to just one month, eliminates offsets with National Insurance payments, and allows you to receive payment from both the National Insurance Institute and the insurance company. Additionally, you can add a 2% increase during claim payout to compensate for the rising cost of living, obtain extra coverage for long-term care, and link the coverage to the cost-of-living index for up to 5 years during the payment period. The cost of umbrella insurance is usually minimal, around 40% of the regular cost of loss of working capacity insurance. Joining an umbrella insurance policy requires a health declaration and signature, which may not always be obtainable. Furthermore, not all occupations can be insured as specific occupation roles at insurance companies. Privately-obtained insurance or executive insurance coverage typically includes a specific occupation definition and does not require an upgrade.

Loss of working capacity coverage should account for at least 75% of the insured's gross salary. The premium payment for this insurance is considered a deductible expense according to Section 47 of the Income Tax Act, as indicated in the annual report at the end of each year.