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What is Income Protection?

If something happened to you, would you be able to survive on your savings? Your most valuable asset is your ability to earn an income. People insure their cars, house and contents, yet maintaining all of these material possessions is reliant on your ability to earn an income, if you got sick or injured and your income stopped tomorrow, how long would you be able to survive financially.

Income Protection is a long-term insurance policy designed to protect your lifestyle by replacing or supplementing your income in the event you cannot perform your job, due to illness or injury, it pays out a monthly tax-free income until you can start working again or until you retire, die or the end of the policy term, whichever is sooner. Your monthly pay-out depends on the percentage of your salary you choose to insure, as well as the severity of your illness or disability and the impact that it has on your ability to work – it does not cover you for retrenchment or termination of employment. Your Income protection is different to severe illness or disability lump sum cover as income protection pays you out monthly.

Premiums for income protection are based on your age, health, whether you smoke, the amount covered, term of the policy and, and waiting periods. There are waiting periods on most policies, which is the period you would have to wait before you can claim from your policy. Waiting periods can range from seven days, one month, three months, six months, or twelve months, depending on your financial needs and occupation. The longer the waiting period, the more cost-effective your premium will be – if you have enough savings to get you through the first three months, then you could possibly choose the three-month waiting period, where your monthly premium would be cheaper than choosing the seven day or one month waiting period.

Another thing to take into consideration is in claim escalation, if a claim occurs, this will increase your payments each year in line with Consumer Price Index or a set percentage, for example, if you took out income protection for R50 000.00 per month with a 0% escalation and you had a successful claim then you would only receive R50 000.00 per month until you retire, die or the end of the policy term, but if you took income protection linked to CPI then your benefit amount would increase every year with CPI.

You can take out income protection with more than one provider, but you need to make sure that your total amount covered between all the insurers you take out income protection with does not exceed your total income after taxes, as you will only be able to claim for the income you earn and would need to prove your income. For example, if you earn R50 000.00 pm after taxes and you insure your income for R30 000.00 pm with insurer A and R30 000.00 pm with insurer B, total being R60 000.00, you would only get paid out R50 000.00 pm and would have lost out on the premium and benefit for that extra R10 000.00 pm. 

Whether or not you are married or single, have children or other dependants, if you are unable to cover your bills due to illness and are not able to work, then you should consider income protection.

Book a session with Justin today. He will gladly help you with your income protection needs.