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Income Protection Insurance South Africa

Get help to pay the bills if you’re unable to work due to illness or injury.

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Would you struggle to make ends meet if your wage suddenly stopped coming in? If the answer is ‘yes’, it might be worth considering income protection insurance.

Each income protection policy will have slightly different conditions: one policy could have a longer benefit period, while another has a higher payment value. Read on to find out more about these and other key terms around income protection.

What is income protection insurance?

Income protection insurance is essentially an insurance policy for your salary. If you become too sick or injured to earn a living, the income protection policy will kick in and act as a replacement. In some cases, it will even replace your salary if you’re made redundant.

So, if you’re unlucky enough to have a serious car accident, and can’t work for six months, you’d get regular payments from your insurer – meaning you could focus on getting better without falling behind on the mortgage.

For a monthly fee – typically around 1-2% of your salary – income protection insurance gives you peace of mind that you’ll still be able to pay the bills if you become too sick or injured to work.

What does income protection insurance cover?

Basically, income protection insurance covers your wage, or a percentage of it. Imagine you’re stuck in hospital for six months, or you’re recovering from major surgery and can’t work. Income protection insurance would ensure you still get regular payments, so you can keep up with everyday expenses without getting into unnecessary debt.

How much you get paid, and for how long, will vary depending on which insurance policy you choose. You could take out a policy which pays 75% of your wage for five years, or you could take out a policy which pays 50% of your wage for six months. Both have their benefits; it’s about what’s right for you.

You can spend the money however you like, as it’s just a replacement for your normal wage, but it’s designed so you can continue paying your bills, avoid the stress of debt and cover any medical costs that you may incur.

How to compare income protection

When looking for income protection insurance, there are a few important features that you should consider, and it’s worth making sure you understand each one properly.

  1. Maximum monthly benefit – Your monthly benefits are what you’ll get from your insurer if you can’t work, but insurance companies will put an upper limit on how much they’ll pay out – this is your maximum monthly benefit.
  2. Maximum percent of income covered – Income protection insurance policies won’t cover the full amount of your wage. Instead, they’ll promise to pay you a percentage of your normal salary. You can choose to pay higher premiums to cover a larger portion of your salary, or you can make your policy more affordable by covering a smaller portion.
  3. Maximum benefit period – Unfortunately, income protection policies won’t pay out forever. The maximum benefit period is the longest amount of time that you could potentially receive payments, if you were put out of work.
  4. Waiting period options – If you take out income protection insurance today, but fall seriously sick tomorrow, your policy won’t pay out. Every policy has a waiting period before it’s valid. It could be as little as two weeks or up to three months, depending on your policy.
  5. Age restrictions – Income protection policies will have a maximum entry age as well as an expiry age. The maximum entry age is the oldest you can possibly be when you first buy your policy. The expiry age is the age at which your policy will no longer pay out.

    How much income protection do I need?

    The amount of cover you’ll need will depend on your individual circumstances, including your income, your lifestyle, and how much you’d like to be covered for. A typical cost of around 1-2% of your average salary may be enough to protect you.

    What isn’t covered under income protection insurance?

    Every income protection insurance policy will have its own exclusions, so it’s really important that you read your product disclosure statement carefully. As an example, exclusions could be anything from certain diseases, such as cancer, to injuries sustained while you were taking part in a dangerous pastime, like snowboarding. Pre-existing conditions may also be ruled out.

    There will also be time restrictions on your policy. Insurers will enforce a waiting period, so you’ll only be able to claim if your illness or injury keeps you out of work for a certain length of time. Usually, the waiting period is somewhere between two weeks and three months.

    Insurance companies will also enforce a maximum benefit period, so you’ll only be able to claim payments for a certain length of time, usually between two years and five years.

    Does income also include cover for redundancy?

    Income protection insurance is designed to help if you’re struck down by illness or injury, but they’re not the only things that can put you out of work for a long time.

    Redundancy is a very real fear for a lot of people and it can throw a serious spanner in the works if you don’t have a big savings pot or can’t find a new job fast.

    Luckily, some insurance companies will give you the option to add redundancy cover to your income protection insurance. Of course, it’ll come at an extra cost, but you’ll have peace of mind that you won’t be in a tight spot if you suddenly lose your job – as long as it’s through no fault of your own.

    Is income protection the same as life insurance?

    It’s important to note that your income protection insurance won’t provide any benefits if you die suddenly, so if you’re killed in a car crash or suffer a fatal heart attack, you won’t receive any payments from your insurance policy.

    However, some insurers do provide a death benefit if you die while already claiming from your policy. This means that if you’re diagnosed with a terminal illness and begin claiming from your income protection policy, but die 12 months later, you would receive a lump sum.

    If you want your insurance policy to offer a payout for sudden death, you may want to consider life insurance in addition to income protection insurance.

    How much of my wage is essential?

    If you could easily live on 50% of your wage, there might not be much point getting a policy that covers 85% of it. This could easily be the case if you have a passive form of income, like an investment property, or a partner who also earns a wage.

    How big is my emergency fund?

    If you’ve built up a decent emergency fund over the years, you might only need to insure a smaller portion of your income. You’ll have to tap into your savings to supplement the rest, but that’s what it’s there for.

    Do I have any other insurance policies?

    Check to see if you have any income protection in your super account as that may also offer a benefit. Other policies, such as mortgage protection insurance and personal accident insurance, can also help.

    Frequently asked questions

    Benefits and waiting periods

    What benefit period should I select?

    The benefit period is the maximum length of time you would like your benefit to go on for. This period can be from one to five years or to a specific age such as 65 ot 70.

    Should you choose a longer benefit period?

    This will come down to how much cover you believe you can fund yourself. The longer you want your benefit to continue, the higher the premium cost you will attract. At the same time, you may really need long-term protection. You should take the cover out for as long as your finances will permit so that you continue to receive an income in the event of long-term incapacity.

    How long should my waiting period be?

    You will be asked to select an appropriate waiting period when you purchase income protection in South Africa. This is the period of time from when you are unable to work to when the monthly benefit payments commence. Here’s what you should understand:

    How long should you make your waiting period?

    The waiting period you choose generally comes down to how long you feel you could survive without an income. You can save further on your policy by choosing a longer waiting period. You might be confident that you have enough savings and sick leave to fall back on for the short term.

    Note: Waiting period options vary from 14 days up to two years.

    Payout eligibility and disability definitions

    What triggers a payout?

    Generally, your ability to perform the duties of your job before disability or a job that pays you income will determine if you can get a payout and how much you’re paid out.

    You’ll either be considered:

    • Totally disabled. Your full benefit usually.
    • Partially disabled. A partial benefit usually.

    Can I apply for cover if I am already ill or injured?

    If you have become ill or injured and are unable to work and earn an income, you will not be able to obtain income protection insurance to cover you for the current situation. However, you can still apply for income protection insurance for future events. Since your health is taken into consideration when you apply for income protection insurance, you may find that your current illness or injury may become a pre-existing condition. This means that you may have to pay higher premiums for your coverage, although this can depend on the nature of your condition or the type and level of injury.

    What is the difference between high-risk and standard-risk cover?

    • All insurance approvals and premiums are assessed based on your level of risk, and the higher your risk level, the more you have to pay in premiums. In some cases, it can be harder to secure cover. Being classified as a standard risk means you have a low-risk job, lifestyle and health factors. High-risk cover can be more expensive for people with riskier jobs and leisure activities.

    What is the minimum working hours required to receive cover?

    This is a condition set by each insurer, requiring that you work a certain number of hours each week to be eligible for cover.

    Can I get income protection with immediate cover?

    If you know what you are looking for in a policy and are keen to get cover in place straight away, you may wish to take out cover with a direct insurer. Cover can generally be put in place online or over the phone and on the same day provided you meet the provider’s entry requirements and no additional information is required.

    Your policy

    What is a benefit period?

    This is the maximum length of time your policy will pay you an income if you are unable to work. Typical benefit periods are 2 years, 5 years or to age 66, and the longer the benefit period, the higher the premium.

    How do income protection insurers define disability?

    Each insurer will have their own specific definition, but in most cases you can be classified with a duties-based disability where you are unable to perform the core tasks of your job, an income-based disability where your income is reduced because of your disability, or an hours-based disability where the hours you are able to work are reduced because of your disability.

    What is an increasing claims option and is it worth having?

    An increasing claims option is an additional benefit offered under an income protection insurance policy. Income protection increasing claims options ensure your benefit amount continues to increase after you claim for a monthly income protection benefit. It’s typically offered by most insurance brands for an additional cost.

    Why do people pay for this option?

    Most income protection policies are designed to replace up to 75% of your regular income, but what you are paid out initially might not be enough down the road, for example in five years (as the cost of living rises). If you have selected the increasing claims option for your policy, your benefits will increase every year either by a fixed percentage or by the yearly inflation rate.

    Your benefit

    Can I get an income protection benefit for more than 75% of my current income?

    In general, most income protection insurance providers will offer to cover your average salary up to 75% at most. However, you may find other insurers that may offer additional cover in excess of up to 15%. It is unlikely that you will find insurers that offer to cover 100% of your income, as there should be an incentive for you to return to the workforce once you have recovered.

    How much will I get?

    Policies will usually pay out up to 75% of your regular gross income.

    Am I covered for redundancy?

    Income protection insurance generally doesn’t provide cover for redundancy, although there are a number of general insurance providers that do provide cover for redundancy in South Africa.

    When will I get paid?

    Waiting periods (the time you must be unable to work before you start receiving a payout) range from 14 days to two years. The shorter the waiting period, the higher the premium. The cause of your sickness or injury does not need to be work related in order to receive the benefit.

    What is a benefit period?

    This is the maximum length of time your policy will pay your income if you are unable to work. Typical benefit periods are two years, five years or to age 66, and the longer the benefit period, the higher the premium.

    Will income protection pay my salary during pregnancy?

    No. Income protection will not provide any benefit payment during pregnancy. There are a number of insurers that will let you waive your premium during pregnancy.

    Your premium

    Does my age affect the premium I have to pay?

    Generally speaking, the older you are, the more likely you are to suffer an illness; therefore, the premium you pay will be higher. Smoking is also seen as an added level of risk and usually sees your premium rise.

    What is the difference between stepped and level premiums?“]

    A stepped premium is one which starts out as very affordable and increases each year as you get older, while a level premium stays the same thoughout your policy and only increases to keep in line with inflation.

    What does “insurable monthly earnings” mean?

    • The monthly income that you can insure under income protection insurance will consist of a number of different components, and these will often vary between insurance providers. Your insurable monthly income is the earnings that you get every month from your primary occupation and by your own personal efforts. It is important to check with your insurance provider if you have any doubts on which parts of your earnings are considered to be insurable. Your total remuneration package often includes the following:
    • Salary
    • Wages
    • Regular commissions
    • Regular bonuses
    • Fringe benefits
    • Payments for overtime

    Insurable monthly income does not include the following:

    • All types of income that you will continue to earn even if you are unable to work
    • Other unearned income, such as dividends, interest, rental income or proceeds from sale of assets
    • Income from your other occupations, other than your main occupation
    • Ongoing trailing commission or royalties

    Will my occupation affect how much I have to pay for a policy?

    Premiums can be based on the type of occupation the person has and the perceived level of risk. A manual or blue-collar worker such as a miner might be required to pay a higher premium compared to an office worker, who is considered less risky.

    Picture: GettyImages

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