Clyde Parsons, Chief Innovation Officer at BrightRock
Yay, it’s payday! If you’re one of the many millions of South Africans lucky enough to earn a regular pay cheque, payday may well be your favourite day of the month. But according to the latest South African insurance gap study published by ASISA in 2022, which found a disability insurance gap of around R19 trillion, most of us simply aren’t doing enough to secure our future paydays. If you want to make sure your payday is protected, these tips from Clyde Parsons, Chief Innovation Officer at needs-matched life insurer, BrightRock, may help you understand why income protection is so important – and what you can do to keep those paydays coming even if you were to get sick or become disabled.
1. What type of insurance should people take out to ensure they are financially secure in the event they are unable to work?
You can buy insurance for a temporary or permanent inability to work due to an illness or injury.
- Temporary income protection pays out a monthly income if you can’t work because of an illness or injury but are expected to recover. You can usually receive monthly payments for up to 24 months, although some companies do offer options that can pay out for up to 36 months.
- For permanent disability, you will usually have a choice between cover that pays out in a lump-sum (usually known as capital disability cover) or cover that pays out a regular monthly amount. This is usually a choice you need to make upfront when you first take out the cover.
Parsons says that BrightRock has introduced a unique feature that lets you choose the best pay-out option at claim-stage on both of these types of cover, when you know whether a lump-sum or recurring income will offer you the best.
2. Why is it important to have income protection?
Because your income is your biggest asset – it enables you to afford the things you need to care for yourself and your family, like a home and car, childcare and healthcare. Having the right cover in place means you’ll be able to continue affording these expenses and honouring your responsibilities should you suffer a debilitating injury or serious illness. And while the lump-sum figures of disability cover you can buy may often look very big, it may not be sufficient to provide you with the income you need if you were to go for months or years without being able to work. It is therefore important to make sure you have enough cover to prevent any shortfalls in your expenses. A qualified financial adviser can do a thorough analysis of your needs to ensure you’ve signed up for a policy that matches them sustainably.
3. At what stage in a person’s life should they take out income protection?
Any person who is dependent on a monthly salary that they get from working needs income protection until they reach retirement age. And young people actually need more cover than older people. The total amount of cover you need to protect your remaining pay cheques usually reduces as you age, because you have fewer and fewer paydays left to protect over time. When you first start out in your career, your need for income protection is at its highest because of the dependency on your income for the rest of your working life. As you start to near retirement age, your children will be likely to leave home and your debts will be paid off, and you’ll have fewer pay cheques to protect, so your financial responsibilities will start reducing. And your retirement savings should kick in at retirement age to provide you with an income once you stop working, so you don’t need income protection cover once you reach retirement.
4. Under what conditions would a person be able to claim for income protection?
The conditions under which you will be able to claim, varies from policy to policy. It is important to sign up for cover that offers claims certainty, so make sure you discuss the claims criteria with your financial adviser. Some insurers may require proof of loss of income or proof that you can’t work, which can be subjective. Some “permanent” income protection policies may reassess you every year and stop paying your regular monthly income, even after you have already been found to be permanently disabled. A good income protection provider will focus on objective medical or clinical criteria, covering a large number of medical conditions, and offering an objective occupational underpin for added certainty. Beware of policies where subjective occupational claims criteria could mean that whether or not you are disabled is determined by the insurer rather than by a qualified health professional.
5. Get expert advice
A well-qualified, trustworthy financial adviser can help you make an informed decision about your income protection cover.