When it comes to insuring themselves against disability most self-employed South Africans reverse the old wise saying and fail to see the trees for the woods.
“They’re so focussed on the distant possibility of permanent disability that they ignore the far greater and more immediate probability of short-term, temporary income loss through an accident or illness,” says Paul McKillen of FMI Income Protection Specialists.
According to McKillen, three in ten self-employed people will suffer from a temporary disability before retirement which will seriously affect their ability to earn, and yet only around 6% of disability premiums sold in SA cover such an eventuality. Another telling statistic is that someone in their forties is 25-times more likely to have a short-term injury or illness of some kind than a long-term one.
“Temporary Income Protection is a completely misunderstood and under-insured risk,” says McKillen, warning that it is leaving a group of self-employed people and commission earners, who number around two million in South Africa, horribly exposed.
The self-employed conundrum
Anyone working in a large organisation with support systems like sick leave and short-term employer loans can ride the eleven-week recovery period for illness or accident, which is the industry average for such claims, but a self-employed person would need a deep cash reserve to do so without cover.
McKillen also points out that there can be longer-term damage in many ways from short-term income loss. “Negative credit ratings, higher interest rates and even re-connection charges compound when you fail to meet a monthly debt obligation and, far more seriously, you might, under financial pressure, force yourself back to work too soon and further impair your health,” he says.
He argues that Temporary Income Protection (TIP) should be the first benefit put in place when constructing a disability portfolio yet a recent FMI survey of one substantial group of personal financial advisers showed that over one-third were not even offering it to their clients.
“Maybe we need to separate the TIP category from the word disability because too many people, including advisors, assume that only refers to something long-term,” he says.
McKillen also concedes that in the past the industry might have made it too difficult for clients to qualify and provided sluggish payouts which defeated the point of urgent, temporary cover, but he believes that has now changed. “There are now alternative products available to customers that are not medically underwritten and therefore don’t require a physical health exam, simply a short questionnaire, and they offer quick, hassle-free payouts that protect you against any illness of injury that would prevent you from earning a living.”
Policies are also far more flexible now in terms of level of cover, waiting periods (one day to 30 days) and duration (one month to 24 months). They are also adaptable – clients under the age of 32 are far more likely to have accidents and far less likely to become ill and therefore can take out an accidents-only policy.
McKillen has a raft of examples of where such cover has proved, if not a life-saver then, at the very least, a lifestyle saver – a commission-earning salesman suffering from depression, a fitter and turner with something as simple as a broken finger which prevented him from working, a car mechanic who was the gunshot victim of crime and needed 8 months to recover, and people from almost every sector who have suffered debilitating back ailments.
“This is commonplace, almost routine stuff, and easy for any self-employed person to understand and predict, and yet alarmingly few of them are preparing adequately for it.” McKilllen concludes.