A recent survey by ASISA shows that at least 55% of the earning population of South Africa face the real risk of not being able to pay their bills if they can’t work. Misconceptions about the need for income protection, or how accessible it is, stand in the way of many being comprehensively insured if they can no longer work. We dispel some of them here.
In this article you’ll learn:
- What income protection is.
- Why income protection is an important part of a comprehensive financial plan.
- Some misconceptions and the truth about income protection.
Loss of income is the single largest risk we face in our lifetime, notes Sanlam product development actuary Karen Bongers, in the article Why South Africans need income protection. It’s why she suggests discussing your income protection options with a financial expert.
Firstly, what is income protection?
Income protection refers to insurance that specifically caters for income loss resulting from an injury or illness that prevents you from earning a living. “If you get injured or become too sick to work, your living expenses will unfortunately still continue, so it’s important to have this type of cover in place ahead of time,” says Bongers. “Having income protection means you’ll continue receiving an income, as if you were still earning.”
5 Misconceptions about income protection cover – debunked
If you find yourself having any of the below reasons for not getting income protection for yourself, it’s time to take another look at your situation and true income protection needs.
“I’m self-employed”
Working for yourself does not disqualify you from taking out income protection. In fact, this is more reason to ensure your income is protected, since you’re likely to have less of a buffer than those who are employed and whose employers might provide for sick leave.
“I already get paid sick leave”
Paid sick leave for employees is usually limited to just 20 to 30 days in a two- to three-year cycle. Once this is used up, an employer would issue unpaid leave.
“I have a pre-existing condition”
Income protection is a comprehensive type of insurance, which means that it should cater for any type of illness or injury that might prevent you from working. However, if you have a pre-existing condition, you might need to pay a higher premium depending on the type of condition and relative risk to the insurer.
“It’s too expensive”
Interestingly, taking out income protection in your 20s or 30s would mean you would be paying lower premiums, provided you don’t have any loadings associated with working in a dangerous environment or play a risky sport. A loading is an insurance premium increase due to a factor increasing the risk involved.
Feel in over your head with insurance policy terms? Read this to decode them
Income protection is more affordable – and flexible – than you may think. While you may opt for a plan that covers your after-tax income in full, there are also options to insure less than 100% of your income to make the plan more affordable, while ensuring you’ve taken care of this vital part of life.
You might even say that income protection is less expensive given that it is relatively simple to take out, yet can be used several times over throughout the course of your working life.
“I’m single, so I don’t need it”
Those without dependants often assume that they won’t need income protection. However, as a single person you may well be even more vulnerable. “Income protection is something you should take out as soon as you start working, as it protects you as much as any dependants you may have,” says Bongers.
Article credit The Top 5 Misconceptions About Income Protection | Sanlam Reality