Do you need income protection insurance?

by - July 05, 2016

Income protection insurance is a type of life insurance that provides an income if you're unable to work. It's often overlooked, because being out of work is not the cheeriest thing to think about. The insurance payment kicks in after a certain period and covers a portion of your income. And, like many things in life, it's not as simple as it sounds.

But is this necessarily the best time to be splashing out on expensive insurance products when most of us are at one level or another tightening our belts?

Currently income protection insurance is not tax-deductible and the benefits paid by these policies will are tax-free.

How long does it last?

How much you pay each month will depend on the policy and your circumstances. Usually income protection insurance covers a wide range of illnesses and situations and has the potential to pay out for many years. Policy terms range widely, from two to five years, or up to age 60 or 65.

Do I need income insurance?

It depends. Income protection policies are designed to meet the costs of 'living', rather than ensuring family members receive a payout after your death. If you're young and single with no dependents and limited fixed expenses, income insurance is useful. If you're a family type who needs to look after loved ones, life insurance may be a better bet.

So how much cover do I need?

Here you'll need to do some homework. Income protection covers roughly 75% of your income if you're sick, injured or unable to work. To get the best cover you'll need to budget your standard costs - like monthly home loans/rent or car loan payments – along with any dependents you want to provide for, plus the cost of managing any investment assets. This will help you decide what level of cover you need.

How much will it cost me?

Shop around and compare cover and prices - they differ greatly. Just keep in mind that with all the paper work and document signing, it is an administrative nightmare. But if you use a broker or financial advisor it could be easier. Be aware that whoever you're speaking to, will get a commission for your business. And they are also supposed to at least annually review your situation and advise you where you may be falling short in terms of cover.

Like most insurance, it is tied up in legal jargon, get out clauses and usually for a very limited time e.g six months that you would be much better off putting R300 a month in a Satrix account or even a stock market fund if you wish to take a risk and leaving that to do it's business.

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