Psychological illness high in 2020 income protection payouts

Financial columnist Jill Kerby and her weekly Moneytimes column...

As someone who works from a home office and with no children to home-school, the lockdowns haven’t changed my routine. I walk down the steps from bedroom to office; no traffic, no missed buses on wet mornings, no office companions to miss: my faithful little spaniel curls up on the sofa behind me until walk time.

Writers, even freelance journalists, are solitary for the most part and I am lucky to both be accustomed to my own company and to be of an age not have any financial worries (other than how my pension fund might be affected by the endless manipulation of money markets).

As this pandemic continues, however, Irish mental health services have never been busier as the rest of the working population – and the newly unemployed – come to grips with the upending of work life, and for many, careers.

Working from home is a tough gig if you have limited space, and that pressure is only heightened if you have children being home-schooled or an infant that isn’t enjoying the company or care of its wider family, or even the professional crèche or playschool.

As a homeworking freelance journalist, my biggest concern wasn’t just about achieving a steady income, but who would pay me if I fell ill or was injured and couldn’t work. Luckily (again) the firm of all-women accountants who took me on as a client in 1987 when I started my solo career insisted that I take out a personal pension and a few years later – when I had a steady income – a modest, tax deductible (up to 40%) permanent health insurance or PHI policy, now more appropriately known as an Income Protection Insurance.

I kept topping up the cover as my income grew, and while, thankfully, I never had to make a claim, it provided extra peace of mind that whatever happened at least up to 75% my income wouldn’t completely disappear.

Jump forward to 2020-21 and we have seen high rates of mental health problems being reported with the latest evidence supplied by one of the leading providers of income protection cover, Aviva Life and Pensions.

According to Aviva, out of the €45 million it paid out in 2020 to 2,000 new and existing income protection claimants, psychological issues are the single greatest cause for claims at 25%, having surpassed orthopaedic issues, which are down 7% but which held the number one slot for many years.

Nearly 60% of new claimants in 2020 were female and 41% male, and their average age was 48 years. (Some 21% of those who also made claims in 2020 suffered some form of cancer (+5%), while 9% recorded neurological issues (+2%). The number of claimants with cardiac issues also increased by 3% last year to 6%. 56% of first time claimants were under 50.)

“The impact of not being able to work due to illness or injury for a period of time can have devastating financial consequences for families,” said Richard Jones, Aviva’s head of product, “particularly those who have significant outgoings each month and little to fall back on in terms of savings. Unfortunately, we continue to see claims from customers in younger age groups.”

The average claim lasts five years, he said, and the average benefit payout is €3,000 per month, but “a significant number are likely to remain as claimants up to retirement age”.

As long ago as last September the Aviva researchers had a pretty good idea that people’s mental health was under serious pressure.

“The study showed the enormous toll that [the pandemic] was taking as anxiety levels had almost doubled since March 2020 and three in five people (42%) admitted at that time to suffering from anxiety (pre-Covid-19: 24%) and stress (pre-Covid-19: 25%),” Jones said.

While 35% of people said they would survive on the State Disability payment of €203 per week if they couldn’t work for a period due to mental health or another illness, “only 17% of those surveyed had sufficient savings for one year.”

Fewer than half of private companies in Ireland offer occupational pensions and perhaps the accompanying income protection cover. The rate of cover for the self-employed is even lower, though this product can be purchased separately to a private pension.

The cost of income protection is risk based, so depends on your age, employment and whether you have a pre-existing health condition. Someone who works in construction or the trades will pay more than an office worker.

Unemployment may be the greatest and most obvious scourge of the pandemic, but thousands of others are still experiencing great financial loss due to serious medical condition.

As this claims report shows, the psychological impact of the pandemic is only adding to that burden.