What is your greatest asset? It is your ability to earn an income. Your income forms the foundation of your financial well-being and planning. Without income there are no short, medium or long term goals that can be achieved. If you were to become disabled to the point you could not generate income, how would you fund your housing situation what about food and also children’s education? The reality that you are no longer funding your retirement savings and the economic hardship and strain put on you, your family, parents and friends has an enormous impact.
Income Protection insures your ability to earn an income in the event that you are unable to work due to an illness or injury. If you are 35 earning R25 000 which grows each year at 7% and plan on retiring at 65 you would earn in the region of 28 million rand in your working career. If you were for any reason unable to work you would require about 6 million rand right now in today’s terms to provide this income until 65 years. Not many people are fortunate enough to have that amount in the piggy bank and this is why we have to have income protection.
Many people ask how much of their income should they insure. Most astute advisors will answer this with another question how much of your income do you need or even better how much do you have left at the end of the month. The fact is that most South Africans need to insure their full after tax salary as they utilised their full salary.
Income protection is generally split into two parts, temporary disability and extended disability. Some life companies combine their product to cover both events while others keep them separate. With insurance companies the devil is in the detail and having an advisor that knows, understands and can explain the differences in each product is crucial to making sure that your needs are met.
If you would like to consult with an advisor in our network to get a second opinion on your existing cover or to assess your income needs please contact us. Our network of advisors are all qualified and come highly recommended.
In the following posts we will navigate the terminology, the theory and the practical of income protection. Look out for the next instalments on comparing definitions of disability, income protection waiting periods and premium patterns and escalations.
All information provided in this article is provided for information purposes only and does not constitute a legal contract between the party delivering this document, the client and any other person or entity unless otherwise specified. Nothing contained herein is intended to be, or should be construed as advice, guidance or a recommendation.