By: Muhammad Wahab, Financial Advisor at PPS
Your income is your greatest asset as it allows you to maintain your lifestyle and provide for your family. Imagine the financial stress you would have if you no longer have an income every month. If you are injured or out of work for months or even years, how would you pay for your bills – house bond, car loan, children’s education, insurance – if you are unable to earn a living?
Income protection is salary protection (insurance) aimed at replacing/supplementing your income for unforeseen instances when you are unable to work due to illness or injury. This type of insurance usually covers you in case of sickness, illness, disease, trauma, accident, hospitalisation, partial disability or permanent disability.
According to the Association for Savings and Investment South Africa (ASISA), South Africans are seriously underinsured. Over 14 million families face a combined insurance shortfall of almost R29 trillion should the main breadwinner become unable to generate an income for whatever reason.
However, before you take out income protection, speak to your financial adviser to understand the policy terms and claiming process. Ask questions such as: what financial planning needs do I have and is there a need for this type of product? Are there any circumstances where it wouldn’t make sense to get income protection insurance? What type of income protection plans are available?
In most cases, different insurers use different terms however, most cases follow the below plans, mainly: temporary and permanent plans.
- Temporary policy – this policy pays out monthly and provides protection for your specific job for up to 24 or 48 months. It helps you to replace any lost income if you cannot work because of a temporary illness or injury.
- Permanent policy – this policy will pay if you become totally and permanently unable to perform your occupation due to illness or injury. It pays a monthly income until the age you selected when you took out the cover but will not pay out on temporary disability.
It’s important to remember that income protection policies are typically more expensive. This is because they provide you with an income for the rest of your working life, no matter how old you are when you are disabled.
However, one of the benefits of income protection is claims payback from SARS. Should you become temporary or permanent disabled, you can claim back all your premiums that you have contributed towards protecting your salary.
So, consider taking out an income protection as early as you start working because most policies have a waiting period. It can be anything from, three months, 12 months and 24 months. Remember that the shorter you want the waiting period, the more expensive your premiums will be. Sometimes the period you select will determine how much your premiums will be.
Regardless of how much you earn, the simple fact that you earn an income means you qualify for income protection. For help and assistance contact your accredited financial adviser who will help you to fully understand the benefits of income protection or visit www.pps.co.za/plan/financial-advisory to find out more.