Special events - Income protection. Model a period of job loss.

1. Maximum Benefit Age – The maximum age at which benefits can be received. We capture this as a standard specification for most policies.

2. Coverage period – The time span over which the policy is active and that the individual (or the employer) will be paying premiums on it. This is set on the Time panel using start and end events or stages.

If the cover is provided by an employer and the policy Type set to Employee Benefit, link it to the related income (using the link button). Once linked, the policy will inherit the start and end events from the employment source - i.e. the policy will be active until the individual retires.

3. Benefit Duration - the maximum number of years benefits could be paid once the owner has become disabled and the waiting period (if any) is over. 

- For active personal policies, benefits will payout annually until:

(a) the disability ends,
(b) the benefit duration is exceeded,
(c) the maximum benefit age is exceeded,
(d) the policy is no longer active,

…whichever happens first.

Important Note: We only ask that a benefit duration be specified in order to provide users a number of different options when entering these policies. If there are no real limits on the number of years a policy could pay benefits – i.e. the policy is active and could pay benefits if I were disabled today, from now until the coverage period ends – simply enter a ballpark figure (20 years for example). Payouts will still be limited by the end of the disability, maximum benefit age, or the end of the coverage period, whichever happens first.


Additional Notes

For personal policies, maximum benefit age can trump the coverage period and end premium payments sooner. If the maximum benefit age occurs before the policy’s coverage period is set to end (on the Time panel), premiums will end instead at the maximum benefit age.

Why specify both a maximum benefit age and a coverage period? Why not assume that coverage begins at a selected start event and ends at the maximum benefit age? The idea is to keep coverage periods flexible, easily movable, and preferably (in my opinion) event based. You could reposition the end event up or down the timeline to adjust the coverage period and in doing so, premium payments. Again, keep in mind that the maximum benefit age will end premiums if it falls prior to the end of the set coverage period.

Taxation

Employee benefits are usually taxable whereas benefits from personal policies are not. To make the software as flexible as possible, we have Taxable / Non-Taxable buttons to the Income Protection screen.

- When the policy Type is a Personal Policy, Non-taxable will be selected by default, but can be switched to Taxable if necessary.

- When the policy Type is a Employee Benefit, Taxable will be selected by default, but can be switched to Non-taxable if necessary.


Modelling Income Protection Policy Payouts in Scenarios

Payouts from income protection policies are triggered by the special Income Protection event, found on the Time screen's event palette, near the top of that screen. 

If you want to model the payout from an income protection policy (usually this would be done in a what-if scenario), go to the Time screen and drag and drop the Income Protection event onto the timeline below. When dragged onto the timeline, two events will be created, an Income Protection event and a Disability Recovery event.

Income protection payments will begin and employment income will cease at the Income Protection event (depending on any Waiting Period set for the policy). Payments from these policies will end either at the Disability Recovery event or when the term of the policy ends, whichever happens first.

If Disability Recovery is positioned prior to one's Retirement event (or prior to any alternative event used to set the end of an employment income), then the income will begin again at the recovery event.

Note: Income protection cover as an employment benefit (a policy linked to one's employment) will end with the employment income's end event, which is normally set to end at the earner's Retirement. Consider this event the normal planned retirement age. The income itself will cease, at least temporarily, at the Income Protection event. Be sure not to move Retirement or whatever event is being used to mark the normal retirement age earlier in the plan unless you intend to use it to end employment linked income protection benefits.