Why you need to insure yourself against disability

It’s not the freak accidents we need to be fearful of, but the less ghoulish risks such as heart disease, diabetes and joint disorders that place us at risk of being temporarily or permanently incapacitated.

Recent research has revealed that most South Africans are hopelessly underinsured in respect of disability – a situation brought about by a combination of affordability, lack of information on how insurance works, a misunderstanding of what causes disability, together with a healthy dose of “it’ll never happen to me”.

From an insurance perspective, the four greatest risks facing us are temporary illness or injury, permanent disability, critical illness and death – with injury and temporary illness being the greatest risks to our working careers.

In fact, a person is nine times more likely to have a temporary disability than to have their car stolen or hijacked.

According to Stats SA, there are currently 2.8 million South Africans living with disabilities, with younger people more adversely affected because they have not had as much time to create a financial buffer.

Disability cover is widely available and generally takes the form of either a lump-sum benefit or an income-protection benefit. The purpose of disability insurance is to provide you with financial protection if you are unable to do your job and/or can no longer perform normal day-to-day functions such as bathing, dressing or eating.

A financial adviser will be able to help you quantify your disability insurance needs, distil the options available to you and find the most appropriate and cost-effective solution for your needs.

Your financial adviser will consider the following:

Income protection

Income protection is a form of disability cover that is essentially a salary protection plan. If you are temporarily or permanently disabled, this cover will provide you with between 75% and 100% of your taxable income.

If you are temporarily disabled, you will generally be covered for up to two years.

In the case of permanent disability, you will be covered up to your nominated retirement age, generally 65.

Ensure your cover is linked to the consumer price index so your monthly payout does not lose value over time in real terms.

Lump-sum cover

Lump sum disability cover provides a single capital payout if you are permanently disabled. This form of insurance can be used effectively to settle home loans or debt in the event of a disability.

If income protection cover is not available to you for whatever reason, lump sum disability cover can be used to provide an income, although this comes with inherent investment, longevity and inflationary risks.

Torr is a founding director of Crue Invest

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