For people with disabilities, employment is very uncertain. Whether due to illness or retrenchment, there is always the possibility of losing one’s job. Income protection can help you stay afloat financially when you are unable to work. After the waiting period, a policy holder will receive a monthly payment to the value of the salary they earned before unemployment.
Andrew Browne, chartered accountant and director at Magwitch Securities, explains: “Usually, there is a waiting period of anything between a month and three months before the policy holder is entitled to claim. Payments will be made monthly until you return to work, reach retirement age – between 55 and 65 – or are deceased.
“While claiming from income protection, you should continue contributing to your retirement savings as this needs to replace your income once you reach retirement age,” he says.
An income protection plan is not an alternative to a retirement plan, nor can the policy holder gain wealth from it.
“Very important to understand that an individual can’t have two income protection policies or a payout that is more than they earned before becoming unemployed,” Browne says. “You can’t enrich yourself from this claim. If you have two policies, the insurers will aggregate your benefit to ensure you are not better off than before.”
He adds that this is to prevent the individual from remaining unemployed. “Otherwise there would be no incentive to return to work,” he points out.
The payments are tax-free, which means they are not tax deductible, and are adjusted annually according to inflation rates.
Browne further explains that it is important to invest in an income protection plan from a young age when the premiums are more affordable.
Contact a financial planner to discuss the potential exclusions for associated conditions that may apply or to learn more about the benefits of an income protection plan.