No right answer to 'How much cover is enough?'
As a young person, you can't afford to be without disability insurance, yet it's the hardest insurance to sell to those who need it most, says Warren Ingram, a certified financial planner and a former financial planner of the year.
Young people tend to live as if they were invincible, increasing their risk of becoming disabled.
Ingram says it's more difficult for young people to imagine themselves disabled when they don't know anyone who has become disabled. They're more likely to know someone who has died, and so taking out cover in the event of premature death is usually less of a grudge purchase for them than disability cover might be.
"Disability cover is much more expensive than life cover, which is probably what puts people off," he says. "In all age groups, people are massively undercovered for disability, but this is especially the case with people who are starting work, because they're starting out and can't see the need for it."
Andrew Merryweather, a financial planner who was left disabled at the age of 24 following an assault, says that when he speaks to young clients about disability cover, they are at first unconvinced. "The classic 'This will never happen to me'," he says. "But after attending one of my talks or sitting down with me, you can see the change in their attitudes.
"I think this is because my story is one that they can relate to. It wasn't a car accident. It was an attack by drunk youths.
"Young clients experience intoxicated people frequently on nights out."
On the question of how much is enough, Ingram says you should have the best cover that you can afford.
If affordability is an issue, he advises young clients to relate their cover to their current level of expenses versus their income. "Try to get [lump-sum] cover that is equal to at least 20 times your annual expenses. It might not be exactly what you need, but that lump sum is a good benchmark. Alternatively, aim for [income protection that is equal to] 75% of your salary, which will be more costly."
Ingram says you don't need a sophisticated analysis to work out how much is enough.
Debbie Netto-Jonker, another former financial planner of the year, says you should ideally have both disability insurance and income protection, as well as dread disease cover. Income protection pays you a salary if you are rendered partially or permanently disabled until retirement, but disability insurance pays out a lump sum which enables you to settle debts, buy an automatic car and/or modify your house, whatever your needs may be.
"My strong advice to young people is: engage a planner who will give you a written financial plan spelling out all of your options on disability."
Netto-Jonker says the trouble with disability cover is that you are limited in terms of how much you can buy. For example, if you earn R30000 a month, you can't insure yourself so that you will be financially better off should you be disabled than you would be if you were working. So you would not be able to insure yourself for R40000 a month. Maximums also apply to lump-sum disability cover and dread disease cover.
She says Merryweather's experience shows the disconnect between how much a person can buy and the actual costs one faces when adjusting to life as a disabled person, let alone the cost of rehabilitation. "It also concerns me that when given advice, people generally think they are being oversold. The reality is that people spend more on car insurance than on disability insurance - whether it's dread disease cover, income protection, or lump-sum disability cover."
She says there is no right or wrong answer to the question of how much cover is enough. "It's about choices and consequences. But be realistic and cover as many bases as you can."