Imagine losing every cent of your income?
Let’s be very clear here. I’m not talking about losing your job and then having to find a new one. Yes, you might struggle for a while, but you can always make a plan and find another one.
What I’m talking about is losing your ability to earn an income.
“But Lawrence, what do you mean ‘lose the ability to earn an income?”
“Very simple,” I’d reply. “Becoming temporarily or permanently disabled and being unable to earn a salary, whether it be for 3 months or 30 years.”
Think about that for a moment, will you?
I’m not going to preach to you about what a responsible adult should or should not do, but take myself as an example, with a single income.
Let’s see…I have 6 months left on my car repayment, a bond with 5 or so years left to go, a son in Grade 8 who already costs a fortune – who might one day want to go to university, and an economy that is squeezing the life out of every Rand I earn.
So imagine having no income for 6 months?
Look, as far as I know my credit record is pretty clean, but I don’t think the finance company is going to extend my credit till I get back to work.
I also don’t think my bank will write off any of the bond even though they want me to prosper.
And then there’s the school…man, if I’m 3 days late on the payment, then the first thing my son hands me is a letter from the principal.
The bottom line is that no-one cares.
But hey, it’s only a car, right? If you’re disabled you wouldn’t need one anyway. The house is a bit more difficult, but I can always move back in with family. Well, that’s also difficult since all but one live overseas.
But you know what would really hurt?
Not being able to give my son the future I owe him. Yes, his mom is there for him, and they’re more than able to take care of him financially (I hope), but I keep asking myself who wants to take care of someone else’s kid? He’s my responsibility – I must take care of him.
I was asked to write an article on the Standard Bank Salary Protection plan. While thinking of what to write, I thought of the risky world we live in.
A world where you need things like:
- Medical aid
- Medical gap cover
- Car and home insurance
- Retirement savings
- Funeral cover
- Life insurance
- Lumpsum disability insurance to settle debts, and
- Salary protection
But you know what?
Push comes to shove you can always use a state hospital. Not ideal, but thousands of less fortunate people have no choice but to use them.
Car stolen? You can always pay the car off even though it no longer exists. Or you can default on your payments (No, no, we’re not recommending that!).
The problem comes in when it affects you personally…
I’m talking death and disability here.
Yes, the young and single only need funeral cover if they die – but what if they become disabled?
Can their parents afford to take care of them? And what happens when the parents are no longer around?
Then there are those of us with dependants who need cover for both.
- Those in two income households – ask what would happen if one of you lost your job permanently? Don’t tell me you’re only living on one salary right now.
- Those in one income households – ask what would happen if the breadwinner lost their job permanently?
Wouldn’t it be great if you could afford to address each and every risk you face?
The truth is that very few of us can. But why throw the baby out with the bath water?
There’s a lot to be said for insuring against a portion of the risk you face. For instance, the Standard Bank Salary Protection plan advertises R40, 000 cover per month from as little as R244 per month.
Now I have no doubt in my mind that I won’t be one of those who qualify at that cost. But what stops me from applying for R3, 000 salary protection cover per month?
When all other money has stopped flowing in – R3, 000 a month takes care of the school fees.
Here’s what you need to know about salary protection in general
- It’s all based on your net monthly salary. To claim, you would need to prove your income at claims stage.
- It used to be that the cost of income protection insurance was tax deductible. This is no longer so, but this also means that the income pays out tax-free.
- The benefit can usually cover your full after tax salary for the first 24 months of disability. After 24 months it normally drops to 75% of your net salary. So if you were earning R10, 000 a month after tax was deducted, then you’d get the full R10, 000 a month for the first 24 months, and after that only R7, 500 a month till 65 (or whatever you chose as a retirement age).
- You can choose a waiting period from 7 days (if self-employed) to 24 months before receiving your first income benefit. Most people opt for 3 months, but 1 month is a better option. The longer the wait, the cheaper the cost.
- You can usually elect to have the salary protection increase every year in two different ways. When not disabled – Here you want the benefit to keep pace with your increasing salary every year. When disabled – Here you want your income to keep pace with the rising cost of living.
- Salary protection pays out on temporary and permanent disability once the waiting period has expired. So if you’re out of action for 3 months because of a car accident, then you’d get 2 months worth of income if you chose the 1 month waiting period option. If you’re permanently disabled then it will pay till your chosen retirement age.
Why the Standard Bank Salary Protection plan?
- It’s convenient. One phone call and you’re covered
- Blood tests are free of charge. A Standard Bank nurse will call on you, wherever you are, to do the blood tests.
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Until next time.
The InsuranceFundi Team