Anita Roodman, Senior Manager: Legal and Technical at Simeka Consultants & Actuaries
A disability insurance benefit is intended to provide financial compensation – either as a lump sum or a monthly payment – to a person who is no longer able to work and earn an income due to illness or injury.
Aggregation for purposes of the limitation of disability insurance cover refers to the downward ratio of insurance benefits to ensure that the sum of all benefits does not exceed the agreed percentage of pre-disability earnings to be replaced (typically between 75% and 100%), thereby preventing an incentive for the insured individual to claim.
South African law contains no statutory, regulatory or binding requirement that disability benefits be aggregated in order to limit disability cover.
The total permitted level of disability benefits payable to an individual used to be set out in a guideline issued by the LOA (now ASISA) in its Code of Good Practice for Disability Insurance. However, the said guideline was scrapped in 2006. Although the aggregation principle no longer forms part of ASISA’s written guidelines, some insurers still apply it as a safeguard against over-insurance, in conjunction with other insurers or employer group schemes, should a claimant have more than one policy or type of cover.
In November 2012, ASISA issued a document titled Considerations for Disability Insurance that aims to provide an overview of the key issues to be taken into account when purchasing disability income insurance. In the document, it is emphasised that disability income insurance is designed to replace lost earnings, and not to create financial gain. ASISA deliberately avoided codifying fixed replacement ratios after competition law concerns. It provides a broad overview of current industry practices, including the types of aggregation used by insurers.
Aggregation is an accepted practice, but it is only lawful if the policy explicitly provides for it. Because aggregation in the disability insurance environment is unregulated, insurers have wide discretion to impose limitations, provided the policy clearly states that such limitations may apply.
It is therefore imperative for individuals and members of employer group disability schemes to ascertain whether aggregation may apply to their benefits, and to take care not to over-insure themselves, as excess premiums could otherwise have been more productively allocated towards retirement savings, for example. Knowing the effective maximum benefit payable allows individuals to plan realistically for disability scenarios, rather than relying on an assumed income level that may not materialise due to aggregation limits.
Clear communication is essential to ensure that individuals understand how aggregation may reduce disability benefits at claim stage. Effective communication enables informed decision‑making, helps prevent over‑insurance, and reduces the risk of individuals paying premiums for cover that cannot be fully realised when needed.
ENDS
