Do you need Income Protection Cover?

Do you need Income Protection CoverDo you need Income Protection Cover

Yes, would be the answer.

Most South Africans who insure themselves against disability do so with capital, or lump sum, policies. However, these policies have their shortfalls, especially if you become disabled at a relatively young age. Income protection policies, on the other hand, pay you a regular monthly income for the rest of your working life.

Your biggest asset is not your house or your retirement savings but your future earnings. Your income stream over your working life supports you and your defendants, and you save part of it to provide an income in retirement. The loss of that income stream through disability will therefore have a major impact on you, and you need to protect yourself against its loss.

If you are relatively young, you may think that you do not need this kind of protection, because the chances of your becoming disabled are low. Although this may be so, you should not forget that anyone at any age can become a victim of an accident or crime, and that at a younger age you have many more years of your working life ahead of you, and more earnings to lose, than a person who is closer to retirement.

Take a professional who embarks on his or her career at the age of 21 and who is forced to stop working at 30 because of a long-term disability, such as paraplegia.

If the professional had no disability cover, he or she would be forced to draw on his or her retirement savings. Even if the professional had saved 10 to 15 percent of his or her earnings for the nine years of employment, those savings would not last more than a year if that person maintained his or her standard of living, and less than five years at a reduced standard of living.

Despite the risks of not having an income in future, only six percent of South Africans have insurance against loss of earnings, according to a statistic released by Absa Financial Services earlier this year.

Most South Africans insure themselves against disability with capital disability policies (which pay out a lump sum if you are disabled, instead of an ongoing income). This is because these policies are generally cheaper than those that provide a monthly income.

Income protection policies are typically more expensive, because they provide you with an income for the rest of your working life (typically to age 60, 65 or 70), regardless of how old you are when you are disabled. The life assurance company takes the risk of paying you an income for the period for which you will require it. With capital, or lump sum, disability products, the life assurer must pay out only the sum for which you are assured.

To learn more about Income Protection Cover contact your Ultrafin adviser today.

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