We go through life hoping for the best, but the reality is that life is unpredictable and filled with unexpected challenges that require financial agility. While you don’t always know what to expect, there are some ways to prepare for the unexpected to ensure you protect your income.
Whether through serious illness, injury or disability, the sudden loss of income can happen to anyone at any time. Income protection insurance, which is housed under the ambit of long-term life insurance, is a product that too many South Africans are not even considering. This is evidenced by the 2022 Momentum UNISA Household Financial Wellness Index, which revealed that 52.7% of financially well South African households contribute to life insurance; however, income protection is not emphasised at all. “Protecting your income is crucial for any person who is dependent on their monthly income to cover living expenses,” says Jenny Ingram, head of product development at Momentum Life Insurance. “Serious illness, disability or injury can happen to anyone at any time, therefore, whether you are a freelancer, running a business or formally employed, you should not underestimate the importance of having income cover.”
In 2021, Momentum paid out R224 million in income protection claims, and the majority of the claimants were between the ages of 40 and 49. The largest income claim paid out was R6.3 million, further cementing the importance of income cover protection, especially considering that the age group 40-49 is still a long way from retirement.
According to Jenny, income cover can be defined as a long-term insurance policy that supplements, or replaces, your income in the event of a loss of income as a result of illness, injury or disability. With the right financial advice, it can be structured in such a way that you can maintain your standard of living should such an event occur, before you retire.
The goal of income protection is to ensure that you continue to receive a monthly income should you become temporarily or permanently disabled; with the objective that your financial position remains the same before and after the event.
Speaking to what an income protection policy would look like, she says, “Income protection cover differs from person to person and from insurer to insurer. It is dependent on a variety of factors. The income cover field is constantly changing, and insurers are upgrading and enhancing policies to better suit consumer needs in these changing times. Some insurers combined the best features of income protection and lump sum disability cover in one solution – providing clients the best of what these benefits have to offer.”
If you are considering income protection, she advises you to, “Carefully consider the level of income you want to protect. Think about your monthly expenses and other important payments you need to make. Income protection benefits allow you to cover up to 100% of your monthly after-tax income.”
Jenny says not being able to earn an income threatens your financial success, and worse, puts your dependants at risk of hardship. “Avoid resorting to harmful solutions such as expensive loans to supplement your salary when you cannot earn an income by ensuring you are covered on that front. Financial planning, which includes setting financial goals and working towards them is the ultimate key to your journey to success, so why not consider talking to an accredited financial adviser to get it right,” she concludes.