Protecting your Income

Income Protection
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How long can you sustain your current lifestyle if you could no longer earn an income?

Can you protect your income?

One of your greatest assets is your ability to earn an income. If you suddenly lost your source of income you would likely have to make drastic changes to your lifestyle. Most of us cannot survive without our monthly income.

That’s where Income Protection comes into play. Income Protection is designed to pay you a monthly income should you become ill or disabled. This protection ensures that you and your family can remain financially secure.

Income Protector, or Income Continuation Benefit (ICB), provides financial security. This comes into affect should you be temporarily or permanently unable to work due to an unexpected illness or injury.
 
It covers a portion of your income after tax and provides you with a reliable monthly income. It starts paying when you are unable to work for longer than your chosen waiting period.
 
You can cover your full after-tax income or just a portion of your income depending on your needs. Our role is to evaluate your financial situation, budget and future needs. From here we can ensure that we are able to give you the correct amount of cover to match your needs

How it works

Risk Analysis

We assess and evaluate the risks associated with your lifestyle and the impact of losing your income.

Some of the aspects we consider:
  • Current Health
  • Income needs
  • Dependent needs
  • Future needs
  • Occupation and salary and risk factors
Risk Analysis

These risk factors influence will have an impact on the cover you can get and the premium you will pay. For a more detailed account of these risk factors have a look at our “Factors affecting your Premium” blog. 

Some Key Terms and Benefits to Consider

Claims Escalation

This means that in a claim your income payment continues to increases each year keeping up with inflation. If this benefit is not selected on your policy your income will remain level until the end of the term. If you earn R25 000 after-tax when you start claiming in 10 years times your monthly payment will still be R25 000. If you include claims escalation after 10 years your income will have increased to R38 783 per month (assuming inflation is 5%).

This is a huge difference when considering the impact of inflation on your monthly expenses. If you are not sure if your policy has this benefit added you need to check or ask us to check.

Waiting Period

The waiting period is the duration you need to be without an income before you are able to claim. If a doctor books you off work for 6 weeks and you have a one month waiting period you will be able to claim for 2 weeks. 
 
The longer the waiting period, the lower your premium. Waiting periods can range from seven days to 24 months, depending on your occupation and your financial needs. The most common waiting periods are 1 month and 3 month. We determine waiting periods on needs, affordability and the emergency funds you have available.
Waiting Period
When considering a waiting period, you need to consider a few things:
  • Are you self-employed?
  • Do you have other provisions in the event of a disability?
  • How long do they cover you for?
  • Do you have an emergency fund?
  • How many times monthly salary is in your emergency fund?

Benefit Period

This refers to how long you will receive an income, should you claim.

Should you have temporary income protection, the amount paid out will be paid out for a maximum of 24 months whereas permanent income protection will pay out till the benefit expires. Usually, this is the retirement age of 65 but it is becoming more popular to select age 70.

Things to Note:

  • Benefit periods – the common periods are up to age 65, 70 and life.
  • Income protection insurance doesn’t cover you for lost income because you are retrenched or become unemployed.

These are just some of the things to consider.

To work out how much income protection you may need it’s advisable to start with a budget. This will help you see your monthly expenses and the income you’ll need to replace.
 
  • Also consider what and how much cover you have through work 
If this is the case, you may want to consider covering less of your after-tax income. Reason being that you don’t want to be paying more on your premium for cover which has already been taken into account.
 
It is may be more affordable to take out income protection for an amount equal to your monthly expenses and not to match your lifestyle. This is a personal choice and it is part of the discussion we would have. An example of this would be if you earn R30k a month after tax and your expenses and needs are only R18k, you could consider income protection for R18k per month. 
Your income is one of your biggest assets. If you are unable to work, due to an illness or injury, and cannot earn an income, you and your family’s lifestyle could be jeopardized. This may leave you unable to meet your day-to-day and monthly expenses or any monthly debt repayments.
 
Protecting your income should be a priority. From a planning perspective, we consider it a foundation to a financial plan. Not every person needs an insurance policy but every person should have a plan for life events.

Our number one job as a financial planner is to listen to you, understand your goals and provide the best objective advice. The correct plan will provide peace of mind. Here at Growmatter, we want the best for our clients and we are committed to working together.

Live Trust Grow Matter

The information provided is not intended to address the specific circumstances of an individual and is for information purposes. Should you require financial advice please contact us at info@growmatter.co.za

 

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