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Income Protection 101

Protect your income and your financial security
The future is unpredictable, this does not mean we cannot put measures in place to protect our finances when life takes an unexpected turn. The chances of being retrenched, falling ill, or suffering a serious injury is highly possible. This eliminates your capacity of earning an income, putting you at risk of additional loss such as repossession of assets. While you may not perceive this to be a risk, take into account that the risk of a temporary illness or injury is much greater than the risk of dying, becoming disabled or contracting a dread disease. That is where income protection comes in, it offers you peace of mind, knowing that your source of income is protected when the unthinkable happens.

Income Protection is a long-term insurance policy that replaces or substitutes your income in the event that you become critical ill, disabled or retrenched, restraining you from earning an income temporarily or permanently. Income Protection acts as a safety net in these circumstances. The basis of an income protection plan is designed to ensure you can maintain your standard of living and that you can at the same time plan for your retirement. You should consider income protection if you have debt and loans to pay to ensure that you can still pay your instalments if you lose your income. Income protection should also be considered if you are a bread winner, and your family is financially dependent on you and there is no extra income. When taking out an income protection policy, you will need to give careful thought as to the level of salary you wish to protect. When considering this, give careful thought to your monthly living expenses, bond, and vehicle repayments, as well as how much money you would like to put away for retirement, keeping in mind that you will need to begin drawing down from your retirement capital at the termination date of your policy.

The level of income cover is built on a percentage of your income, typically between 50%-75%, but can be increased to 100% with top-up type income protection benefit structures. In some way, it can assist in sustaining the lifestyle you have become accustomed to. There are also options of  temporary and/or extended cover which can cover you to the ages of 65 to 70, or even whole-oflife. Income protection cover should also not be confused with an accident, critical illness or unemployment insurances, which all work in different ways – in both premium and pay-out – and are offered by various institutions, with their own terms and conditions.

How much does it cost?

How much cover will cost will depend on the type of policy you have as well as your specific circumstances. Your income protection premium is based on the following:
• Your age.
• Your sex.
• Your job.
• The industry in which you work.
• Your health and family history.
• Whether you smoke or not.
• The income amount you want to cover.
• How long you want the benefits to be paid – for a year, or until age 60, or 65?
• The benefits you want covered – dread disease and disability, retrenchment, or loss of income, or all four?
• The range of illnesses and injuries that are covered.

The importance of discussing all these options and variations with one’s financial advisor is of vital importance. Job security during these difficult times is no longer a certainty, and you can never be sure that you won’t get into an accident or fall ill, keeping you away from work. Make sure that you’re covered if something should happen to your income.

If you have any concerns about your potential financial situation in the event of being unable to work due to illness or injury, and would like to have a better understanding of Income protection, contact our financial advisor’s at Morebo to ensure you get the right income protection plan that will best suit your needs 

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Morebo Financial Solutions (Pty) Ltd, an affiliate of Liberty, the Liberty Group Ltd is an authorised Financial Services Provider in terms of the FAIS Act. (No. 2409)
Morebo Wealth (Pty) Ltd, an affiliate of Liberty, the Liberty Group Ltd is an authorised Financial Services Provider in terms of the FAIS Act (no. 2409)
Morebo Brokerage (Pty) Ltd is an Authorised Financial Services Provider in terms of the FAIS Act (no. 48360)

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