If you lose your income, can you keep paying the bills?
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It’s estimated that more than six out of 10 (62%) of South Africans will run out of money within three months if they lose their income due to injury or illness. How long would you last without an income? What would be your next move? What payments would you cancel first?
These are the questions that every working South African should be asking themselves when they do their financial planning, says Leza Wells, Chief Product Actuary at life insurer FMI (a division of Bidvest Life Ltd) – and the answer invariably lies in finding ways to protect your income first, before you even look at any other form of life insurance.
Income protection even gives you the space you need to take time off to recover when suffering from mental health issues, which is becoming increasingly prevalent in our stressed society.
The problem is that most people see life insurance as something that pays out when they die. This means they are twice as likely to buy life cover over income protection or disability cover - which could leave them without an income when an illness or injury strikes.
If you think it will never happen to you, think again. According to FMI’s claims statistics, seven of out every 10 South Africans will experience at least one injury or illness in their lifetime that will prevent them from earning an income. In fact, you are nine times more likely to experience a temporary disability than to have your car stolen or hijacked in South Africa.
“As a nation, we don’t understand that our most likely risk is falling ill or being injured. And if you can’t earn an income for an extended period as a result of illness or injury, the results could be devastating. How do you pay school fees, bills and keep food on the table when you’re not earning?” said Wells.
According to FMI’s 2019 claims statistics, a 32-year-old client has a 91% chance of having a temporary injury or illness during their working career, and a 37% chance of experiencing a critical illness. FMI is due to release its latest claims statistics for 2020 in mid-October, and Wells says the numbers show that income protection benefits meet the major challenges facing consumers in a pandemic-ridden world.
The pandemic has also highlighted the need for South African consumers to better understand their life cover. Apart from the fact that many people are not always insuring their most likely risks, they don’t always understand the terms of their cover, which can lead to disappointment when the time comes for them to claim.
“It’s critically important to know exactly what you are covered for and for how long. For example, many people often assume a long-term disability will result in a payout on lump sum disability cover. However, this cover only pays out if your disability is permanent and a doctor confirms your condition won’t ever improve. FMI’s claims experience confirms that in order to ensure you are fully covered you must not only have temporary income protection, which pays for up to 24 months, but extended income protection as well. This will ensure you will be paid a monthly income for as long you cannot work,” said Wells.
“It’s also vital to understand income protection benefits, how waiting periods work and other useful additional benefits such as childbirth benefits and critical illness cover for your children.”
Your best bet? Speak to a financial adviser, says Wells. They’ll be able to help you assess your real needs and risks, and help you make the right financial choices that will allow you to sleep easy at night.