The importance of income protection in uncertain times

If illness or injury stopped you from working for an extended period, would you be able to survive on savings or sick leave alone? Without your income, would you be able to pay everyday expenses like your bond, rent, groceries or school fees, and take care of your family and financial commitments?

If the answer is ‘no’, you might want to consider income protection. Every year, tens of thousands of South Africans find themselves unable to work due to a serious illness or injury, and income protection is designed to give you some cover if you can’t earn an income. We often think of illness as a few days off work with the ‘flu, but don’t consider what would happen if we were unable to work for a longer period.

Part of the reason is that we underestimate the value of our earning ability. Ask many people what their most valuable asset is, and they’re likely to say their house, or their car. They’re wrong. Your most important asset is your ability to earn an income – and protecting this asset is a wise thing to do.

This is particularly important at a time like this, when the COVID-19 pandemic is forcing us to question many things we took for granted. Job security is not what we once thought it was. How protected is our income really? Is there a way to guard against losing that income due to an unexpected illness or injury? What if you get retrenched?

These are questions we’re being asked at Stangen every day. Marius Botha, MD at Stangen unpacks some of the most asked questions regarding income protection:

What is Income Protection?

Income protection is an insurance policy designed to provide you with a replacement income if you can’t work because you’re ill or injured. It ensures you receive a regular income until you can go back to work, or retire. It’s not the same as critical illness insurance, which pays you a lump sum if you contract a specified serious illness, like cancer or heart disease.

Why is Income Protection important?

The biggest risk most South Africans face isn’t dying: it’s losing their ability to earn an income before they retire.

Do I need income protection?

If illness or injury would mean you would not be able to pay your bills, you should consider income protection insurance. It’s that simple.

What are the various reasons for loss of income?

The reason for the loss of income determines the type of income protection policy you take out. The two most common reasons are an inability to work due to illness or injury, and retrenchment. Retrenchment cover is basically an add-on to income protection, and pays out a percentage of your after-tax income if you’re retrenched involuntarily.

What’s the difference between income protection and lump sum disability cover?

Income protection pays you a monthly amount until you retire or return to work if you are unable to work due to a long-term illness or injury. Disability cover pays out a once-off lump sum if you become totally and permanently disabled.

How long do I have to wait to claim income protection?

It depends on the terms and conditions of your policy. Generally, at Stangen, payments will start after you have been off work for 3 months and will be limited to 75% of your after-tax income immediately before you became disabled. On confirmation of a disability, your monthly benefit will be payable until you recover, turn 65 or die, whichever comes first.

The bottom line? If you depend on a monthly income to meet your obligations and look after your family, you should be including income protection in your insurance portfolio. It could be the best investment you ever make.

Marius Botha, MD at Stangen