Pro­tect your in­come


The Citizen (KZN) - - Personal Finance - An­dre Bas­son

In­come pro­tec­tion prod­ucts are, in gen­eral, more ex­pen­sive than lump-sum dis­abil­ity in­sur­ance.

Most peo­ple are well aware of the im­por­tance of life in­sur­ance and to some de­gree, cover for dread dis­ease and dis­abil­ity, but they are less so when it comes to in­come pro­tec­tion poli­cies.

In­come pro­tec­tion is a longterm in­sur­ance pol­icy de­signed to sup­ple­ment your in­come in cir­cum­stances where you are un­able to work be­cause you’re ill or in­jured.

It will con­tinue to do so un­til you re­tire, are able to re­turn to work or upon death – what­ever comes first.

It is an im­por­tant part of an over­all risk plan and fi­nan­cial strat­egy.

The level of in­come cover is based on a per­cent­age of your in­come, typ­i­cally be­tween 50% and 75%, but can be in­creased to 100% with top-up type in­come pro­tec­tion ben­e­fit struc­tures.

In some way or form, it can help sus­tain the life­style you have be­come ac­cus­tomed to.

There are op­tions of tem­po­rary and/or ex­tended cover which can cover you to the ages of 65 to 70, or even whole-of-life.

In­come pro­tec­tion poli­cies don’t nec­es­sar­ily pay out as soon as a claim is made. You need to wait for a pre-agreed pe­riod to pass, known as a “de­fer­ral pe­riod”.

That is de­cided on when you take out the cover and can range from a few weeks up to a year.

The longer the de­ferred pe­riod, the cheaper the monthly pre­mi­ums will be up to the mo­ment of any claim.

The shorter the wait­ing pe­riod the more ex­pen­sive the cover, as the risk is per­ceived higher by the in­surer.

One can select to have a wait­ing pe­riod, for ex­am­ple seven days, one month, three months, be­fore the ben­e­fit kicks in.

If you choose a long de­ferred pe­riod, you’ll need to be cer­tain of sick pay, or that you have the sav­ings to cover all your ex­penses.

For busi­ness own­ers or self-em­ployed peo­ple who are not af­forded sick or an­nual leave priv­i­leges, the risk is higher, es­pe­cially if they can only per­form their oc­cu­pa­tion par­tially.

A good struc­ture is to com­bine sick­ness ben­e­fit (which will pay out when booked off by a doc­tor), cov­er­ing short and medium-term needs, with a “per­ma­nent in­ca­pac­ity ben­e­fit”, cov­er­ing long term in­come gen­er­a­tion (here you will need to pro­vide proof of loss of in­come).

A sick­ness ben­e­fit is es­pe­cially rel­e­vant for pro­fes­sion­als earn­ing a fee from client con­sul­ta­tions, such as lawyers and doc­tors.

The liveli­hoods of the busi­ness’ salaried em­ploy­ees are also at stake, so the knock-on ef­fect can be sub­stan­tial and dev­as­tat­ing.

There are many vari­ables at play and ev­ery in­di­vid­ual’s cir­cum­stance is unique, not to men­tion the fact that in­come pro­tec­tion prod­ucts are in gen­eral more ex­pen­sive than lump-sum dis­abil­ity in­sur­ance.

Choices of struc­ture and sub­stance should be dis­cussed in de­tail with a fi­nan­cial ad­vi­sor and in the con­text of reach­ing cer­tain long-term fi­nan­cial ob­jec­tives.

In­come pro­tec­tion cover should also not be con­fused with an ac­ci­dent, crit­i­cal ill­ness or unem­ploy­ment in­sur­ances, which all work in dif­fer­ent ways – in both pre­mium and pay­out – and are of­fered by var­i­ous in­sti­tu­tions, with their own terms and con­di­tions.

This con­tent was pre­pared in con­sul­ta­tion with fi­nan­cial plan­ner Les­lie Greyling.

An­dre Bas­son is a fi­nan­cial plan­ner at Bren­thurst Wealth

Pic­ture: Shut­ter­stock

VA­RI­ETY. The scope of in­come pro­tec­tion has evolved over the years, of­fer­ing op­tions for re­trench­ment and clo­sure of sole pro­pri­etary busi­ness or part­ner­ships.

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