by Income Protection provides a life-line if you are unable to work owing to sickness, injury or, for certain policies, unemployment. We explain what you need to know before taking out this policy.
Santam, South Africa’s largest insurer, explains income protection as ‘providing certainty of income in the event that you are unable to work owing to illness or accidents’.
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Ayanda Nosuko* explains how all she dreamed about when she was young was travelling and buying clothes, until the fateful day in spring when her mother returned home without a job or savings.
“In a matter of a moment, it dawned on me that I was now financially responsible for my mom. At times I feel frustrated and responsible …. like I am suddenly the mother in the family,” she reveals. “But now I remain grateful for what I have learnt about the importance of planning for my future.”
If like Ayanda, you are considering income protection, you need to be aware of a few things first:
What will it cover?
Consider whether it only pays out the equivalent of your monthly salary or covers unpaid debts as well. For example for people who are employed full time by a company, Momentum offers them the choice to take out 100 per cent cover for 6, 12 or 24 months, and 75 percent of their net income until they retire if they are permanently disabled.
What circumstances does it pay out for?
Many basic income protection policies only cover illness or accident; find out whether your chosen policy covers unexpected layoffs as well. For example, Discovery covers all your Discovery premiums (life, health, retirement, insure) if you are retrenched under their Continuation Benefit.
How is it taxed?
It is important to understand that income protection is only taxed when you pay your premiums because they are not tax-deductible; however the payouts are tax-free.
Does it offer short or long-term protection?
Some policies will only cover you for a few months while others will cover you until such date as you start full-time employment again. You need to choose the time frame that you feel best suits your needs.
How does it compare with other policies?
Ensure that your policy meets all of your possible needs by choosing the most competitive offering. Sanlam, for example, suggests combining income protection with disability cover, critical illness cover and life insurance in the way that best meets your present and future needs, and those of your family.
Income protection, coupled with good critical illness benefits can offer you a lifeline on your path to physical and financial recovery. Just ensure you know exactly what your policy will cover you for before you sign on the dotted line.
