Cover expenses when you lose your income
If you want to secure yourself and your family financially a great option to consider is income protection cover which will allow you to cover expenses if you’re unable to work as a result of disease, impairment, or illness.
What is Income protection?
It is a long-term insurance policy that pays out a set percentage of your after-tax income on a monthly basis if you are not able to work and earn an income due to an illness or disability.
It is also commonly referred to as salary protection, salary insurance, and income insurance.
You can take out this type of insurance as an individual or opt-in to your employer’s group protection plan. It is also available to business owners in the form of overheard cover
How does Salary protection work?
If you become temporarily or permanently unable to work, salary insurance cover will pay you a percentage of your monthly after-tax income until you recover or reach retirement age.
You can customise your cover by selecting a cover percentage that suits your needs as well as a deferment period and any top-up options that work for you.
Who is eligible for Income cover?
All South African citizens and permanent residents who are employed or self-employed, aged between 18 and 59 are eligible for cover.
The eligibility criteria may change based on the insurer you choose to work with but, these are generally the non-negotiable details.
What does Salary protection cover?
It covers you if you become temporarily or permanently disabled or if you’re unable to work as a result of a disease or illness.
Some plans may cover you in the event of retrenchment but this is a rare feature that will be unique to the plan and insurer you choose to work with.
Does it cover you if you lose your job?
No, you will not typically be covered for termination of employment regardless of the cause of the termination.
Protection against termination is done by the Unemployment Insurance Fund (UIF) which pays out up to a maximum of 58% of your daily income if your employer terminates your employment.
What does it not cover?
Salary insurance cover does not cover loss of employment or payout in the event that the disability, illness, or impairment was the result of intentionally self-inflicted injuries or exposure to danger, participation in illegal activities, negligence, refusal or critical medical treatment, the effects of alcohol or drugs, and musculoskeletal or mental health impairment exceeding three years.
Insurers generally have a specific list of exclusions that are unique to them but the above are general exclusions that apply to most. Pilots or aircrew are also generally not covered for the loss or withdrawal of their licenses.
In addition, any person that is unable to work as a result of injuries or impairment resulting from participation in a civil disturbance, riot, or contravention of marital laws will not be able to claim.
How much does it cost?
Premiums will be based on your monthly income as well as your specific risk profile which is determined based on your age, level of education, occupation, gender, and health.
Will I need to have a medical exam?
No, you will not be required to submit to a medical examination in order to qualify for a plan.
Most insurers will ask you about your overall health and whether or not you smoke but you will not be required to go for a medical exam. Some insurers will only require an HIV test.
When can I claim from my policy?
If you have become unable to continue working in your occupation as a result of a disease, illness, or impairment you can claim from your plan.
If you are temporarily unable to work, the policy will pay out the percentage of income as per your policy schedule until you are either able to work again or for up to 24 months. Permanent disability will enable you to receive up to 100% of your cover amount until you reach retirement age.
How long is Income cover paid for?
It will pay out a percentage of your cover amount for up to 24 months if you are temporarily unable to work and up to 100% of your cover amount if you are permanently unable to work until you reach a retirement age set in your policy.
How much cover do you need?
Most policies offer cover for 75% of your after-tax income and recommend this amount but you can opt for up to 100% cover depending on your needs and goals.
Speaking to a financial advisor will help you ascertain exactly how much salary protection you need based on your unique financial circumstances (including alternative sources of income, savings, and other insurance policies), and monthly expenses.
How much of your income does it cover?
You can cover 25%, 50%, 75%, or 100% of your after-tax income with a policy based on your financial circumstances and needs.
The best way to determine how much of your income you should cover is by getting a financial advisor to draw up a financial needs analysis that takes your specific circumstances and needs into account. Many South African insurers that deal with income protection also offer complimentary financial advisory services which you should take advantage of.
Can I increase my cover?
You may increase your cover by contacting your insurer or adjusting your cover by making use of the insurer’s app or online self-service portal.
Can self-employed people get cover?
Some insurers provide salary protection cover or business insurance cover for people who are self-employed or own their own business.
That said, most insurers do not provide salary insurance to the self-employed as they’re often more likely to find business interruption insurance more beneficial.
How to choose a provider
You should choose a provider based on the features and costs of the income cover plans that they offer but also based on the reliability, reputation, and level of service of the insurer.
Where to get a quote
Insurance quotes are now readily available on the websites of lenders but can also be provided by registered financial advisors specialising in risk management products and services.
Is it worth getting Income cover insurance?
If you depend solely on your salary to pay your bond, insurance plans, debit orders, school fees, and household necessaries such as groceries, and maintenance expenses then insurance is worth it for you.
This is true whether or not you are the sole breadwinner in your family because we also cannot predict what will happen in the lives and the finances of other family members.
While income cover is particularly important if you have debt or are the sole income earner in your family – even people who are debt-free, have a dual-income family, or are young and healthy should consider insurance.
When does the cover end?
Your cover will terminate if you leave your current employer, pass away, or reach the age of retirement.
If you’re temporarily disabled and receive payouts for 24 months (or the maximum period specified by your insurer which may also be 6 or 12 months) you’ll no longer be entitled to further benefits from your income protection insurance.