Your greatest asset is the ability to earn an income, which is why taking out an income protection policy is actually a really good idea.
The lowdown in “finance speak”: income protection is designed to supplement your income in the event that you are no longer able to work as a result of injury or illness. It’s a long-term insurance policy and will continue to provide an income until retirement, when you are able to return to work, or upon death – whichever occurs first.
We know, sounds a little depro, but it’s the reality we live in.
So, we all get why it’s important to insure your property and assets, but very few people consider actually insuring their salary. Trust specialist and corporate blogger Kim Nokwaza explains why it can be a really good financial move…
First of all, what exactly is an income protection policy?
You might be familiar with capital disability policies – these pay out a lump sum if you are disabled (instead of an ongoing income). They’re the policies many South Africans go for. Why? Because they are generally cheaper than those that provide a monthly income.
“Income protection policies are typically more expensive,” explains Kim, “because they provide you with an income for the rest of your working life, regardless of how old you are when you are disabled.”
Note: Income protection cover shouldn’t be confused with accident, critical illness or unemployment insurances – these all work in different ways as far as premiums and payouts are concerned, she continues.
Discuss these options with your financial advisor. And make doubly sure you understand the terms and conditions before you sign on the dotted line.
Think you don’t need income protection because you’re young?
If you’re relatively young, you may think you don’t need this kind of protection because the chances of you becoming disabled are low. Fair enough, but keep in mind that anyone at any age can become a victim of an accident or crime.
Think about it this way: “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,” says Kim.
It kinda boils down to this…
The real conversation you should be having is not whether or not you require income protection, but how you’d cope financially if you were no longer earning a salary due to illness or injury.
Nobody wants to think about unemployment or disability, but these circumstances have the potential to launch a family into pretty dire financial straits. At the end of the day, it’s an important part of an overall financial strategy.