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SA's No 1 Insurance Blog

Your life comes to a grinding halt and the proverbial ‘you know what’ hits the fan.

Last week we kicked off the year with a blog post about the questions you need to ask yourself before you dive into buying an insurance policy. I purposefully started the list of questions off with this one:

What type of scenario plays out if you become disabled or ill and you can’t work?

I wish I could say that I was being overly dramatic about the statement right at the top of this post, as well, but I’m not!

Do you know that funeral cover is by far the most sought-after insurance product in South Africa? We love taking out loads of funeral cover. Sometimes we buy life insurance, but we never take out much disability or critical illness cover. In fact, probably only 1 out of every 50 life policies sold in South Africa, on a daily basis, covers someone’s salary.

Can you see the glaring issue?

Why would someone not take out insurance to protect the one thing that keeps their home fires burning? Their salary.

Before I answer that question, consider this for a second:

The average person is going to put in at least 90 000 hours, over the duration of their working career. That’s a lot of time spent at the grindstone, slogging away to earn a pay cheque, wouldn’t you agree? But money talks and we all need a bucket full of it nowadays.

Let’s get serious for a second – If you got seriously ill or became disabled, how sympathetic would your employer be?

Maybe it would play out like this:

In the beginning, everyone is sympathetic to your plight and the fruit baskets and WhatsApp emojis arrive unabated. Fast forward a month and your boss is starting to ask a few more pressing issues, like what your long-term prognosis is. Six months down the line and your position is being advertised all over the internet.

“You are a really nice bloke, but business is business and your KPIs need to become someone else’s numbers to sweat.”

“But hold on a second, Mr. Doomsdayer, I have group scheme cover in place (a life insurance policy that’s generally linked to your company pension or provident fund and it offers life cover, lump-sum disability cover, and income protection).” Because I don’t have a job anymore, wouldn’t this policy kick in and replace my lost income?

You’re right. Your group scheme cover will probably cover 75% of your take-home salary. Or is it perhaps 65%? Maybe it’s only 50% on temporary disability with a caveat in the wording, that if you are still man down after 12 months the benefit falls away.

If you have income protection cover with your company, please make sure you understand the benefits you are directly paying for. Your company takes a premium off your pay cheque each month, so at the very least you should look into what is and what isn’t covered. Some of you might be worrying about the fact that the company you work for doesn’t offer any group scheme benefits. I’ll get to that just now, but first, let me get back to why South Africans don’t take out income protection cover (or salary protection by another name).

It’s because South Africans don’t know about the product.

I mean they know what the smart marketers send out in the way of advertising, so words like Salary Protection aren’t completely foreign to the broader public. But South Africans don’t really know the ins and outs of the product itself. That means they are hesitant to purchase the product and as a result, they take out another funeral policy.

We know how funeral plans work, you die, the insurer pays out R50 000 in 48hours.

Here is the low-down on income protection cover:

  • If you earn a salary (either from a company or you work for yourself) and your company doesn’t offer group scheme cover, you need an income protection policy
  • The policy will cover you against the risk of becoming ill or disabled and not being able to work as a result
  • Most insurance companies will allow you to take out cover against 75% of your take-home salary
  • So, if your take-home salary is R25 000, you can make sure that if something happens to you, you’d get a monthly pay out of R18 750/month from your salary protection policy.

If I told you today that your salary would disappear in a month from now, indefinitely, would you be able to sleep tonight?

So now that you know, what are you going to do about it?

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