South Africans are generally underinsured, but nowhere is it more evident than when it comes to protecting their income and protecting themselves in the event of disability. We are all exposed to the risk of disability or dread disease and the resultant loss of current income and potential future earnings. Yet, a recent Life Office Association Insurance Gap Study revealed that South African households would need around R12,3 trillion to maintain their living standards should one of the breadwinners become disabled. Actual cover at that time, however, was found to be around only R6,5 trillion, leaving a significant disability insurance gap. This shortfall in income protection insurance is across all age groups, including young and old.
An income protection policy pays out a regular cash payment that replaces part of your lost income if you have an illness or disability and you can’t work. Consider it your first priority; it’s just as important as life insurance, particularly if you are the owner of a business or a key staff member, a commission earner or a freelancer.
Different policies have different rules for payment, but an income protection policy can be structured by your financial advisor to meet your specific needs. With some policies, your inability to work must also result in a loss of income, in order for you to qualify for a claim.
Income protection can protect you against the possibility of temporary and permanent disability, in that the benefit payments may continue until your chosen retirement age.
One of the major benefits of income protection is that your monthly premiums can be deducted from your taxable income. That’s because the government actually wants you to take responsibility for looking after yourself.
Income protection benefits are generally paid out as a regular income. Some policies provide cover for a period of up to six months, while others will pay you an annuity for the rest of your working life until you reach retirement age. The option you choose will determine the premium you pay, as will the level of cover you require.
What to watch out for Take note of the waiting period stipulated on the policy you choose. This is the period you will have to wait before the life assurer will start paying the benefit. Pre-existing medical conditions are initially excluded from cover, although some assurers will pay out if a specified period of time has passed. It’s also likely that claims will not be covered for the first 60 days.
Disruptive events that prevent you from earning an income may be the result of death, disability, or disease. These events are random, but it must be highlighted that in South Africa, the chances of an unnatural death occurring – as the result of a motor vehicle accident or crime – are seven times higher than in the UK, according to insurance industry studies.
