Protecting your income should be a priority in these uncertain times

We live in unpredictable times filled with unexpected challenges, and if Covid taught us one thing it is that illness and disability can happen to anyone at any time.

Now is a good time to consider income protection to ensure that you can survive in challenging economic times should you lose your income. Serious illness, injury, or disability can also cause you to lose your income.

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.

Income protection insurance falls under long-term life insurance and according to the 2022 Momentum UNISA Household Financial Wellness Index, 52.7% of financially well South African households contribute to life insurance, but income protection is not considered important.

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Why is income protection important?

“Protecting your income is crucial for any person who depends on their monthly income to cover living expenses. Serious illness, disability or injury can happen to anyone at any time and therefore, whether you are a freelancer, running a business or formally employed, you should not underestimate the importance of having income cover,” says Jenny Ingram, head of product development at Momentum Life Insurance.

Momentum paid out R224 million in income protection claims in 2021 and the majority of the claimants were between the ages of 40 and 49. The largest income claim paid out was R6.3 million, which shows the importance of income cover protection, especially considering that the age group 40-49 is still a long way from retirement, she says.

“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.”

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Is this kind of cover always the same?

Cover differs from person to person and from insurer to insurer and depends on various factors. Ingram says the income cover field is constantly changing, with insurers upgrading and enhancing policies to better suit consumer needs.

Ingram says some insurers combine the best features of income protection and lump sum disability cover in one solution.

When you consider income protection, she says you must carefully consider the level of income you want to protect.

“Think about your monthly expenses and other important payments. Income protection benefits allow you to cover up to 100% of your monthly after-tax income.”

Losing your income also threatens your financial success and worse puts your dependants at risk of hardship. Ingram says income protection also helps you to avoid resorting to harmful solutions, such as expensive loans, to supplement your salary when you cannot earn an income by ensuring you are covered.