Picture: 123RF/ RUSLAN IVANTSOV
Picture: 123RF/ RUSLAN IVANTSOV

Income protection insurance is crucial for anybody who depends on their monthly income. Policies offering these benefits have evolved and become more consumer-friendly, but you need to know what to look for to get the best benefits.

Ernest Zamisa, a financial planner at Momentum with 20 years' experience, says he has seen life assurers amend their life and risk products regularly over the years.

An informed financial adviser can be invaluable to ensure you obtain the right assurance for your needs. You should expect your adviser to recommend a policy that meets your needs and that will pay out when you claim.

Your adviser must also keep abreast of product changes and communicate the impact of such changes to you after you have taken out the cover, says Zamisa.

Cover for all your income

If you are formally employed and "side-hustling" for extra income to make ends meet, you'll want to cover these earnings too under your income protection policy.

Kresantha Pillay, lead specialist for Lifestyle Protector at Liberty, says some people's dependence on their side hustle is quite significant at almost a quarter of their overall income.

A good product will allow you to choose a lump sum or recurring income  layout at claims stage

As a result, Liberty has updated its income protection offering to cover two income streams under the same policy.

Previously, policyholders with two occupations would have had to insure them separately, resulting in more paperwork and costs, she says.

To qualify, your second income should be one you declare to the South African Revenue Service and should make up 20% or more of your annual income, she says.

Zamisa says covering all your income is important, but to include your side hustle in a single policy may not be the best option, particularly if your second job is considered more risky than your main job. This could mean a higher aggregate premium for the total amount of income protection you require, he says.

Schalk Malan, CEO of BrightRock, says a good income protection product will match your needs by offering a benefit that tracks the value of your remaining pay cheques. The benefit should provide you with a guaranteed income that allows you, at claims stage, to choose between income payments or a lump-sum payout.

Typically, this cover will start out fairly high and increase initially to match your increasing financial needs before it starts reducing as you near retirement.

Insured for defined conditions

If you are able to do some kind of work, even in a lesser role, after suffering a disability, some policies will pay out only that part of your income you can no longer earn. However, newer policies include full income cover when you are diagnosed with certain listed conditions.

Malan says policies that pay out based on a list of clinical conditions provide you with more certainty at claims stage. If you have a listed condition, you will receive a benefit once your condition has been established clinically and you won't need to rely on the life company's subjective assessment of whether you are able to perform your occupation or not.

Proving a claim

Traditionally, life assurers expect you to prove the loss of income you have suffered. The problem with this is that after an accident or falling ill, it will take some time for your bank statement to reflect a drop in your income, possibly a month or more, by which time your bills have piled up.

A better option, according to Malan, is a policy that pays out on a sick note from your doctor, who sets out what is wrong with you. This will help later when you return to work and your income protection payments stop, as it might take some time to get your income back to the level where it was prior to your illness or injury, especially if your income is fee- or commission-based, he says.

Waiting periods

All policies have waiting periods - an initial period during which you cannot claim.

You choose the waiting period when you take out your policy but there are minimum waiting periods that apply to certain occupations based on whether the insurer regards your job as risky. For instance, the industry typically applies a longer waiting period of up to six months for hairdressers and gym instructors, but seven days for surgeons.

Benefit payout flexibility

The flexibility to choose how benefits are paid to you is another feature you will find on newer policies. A good risk cover product will offer you the ability to change your choice of a lump sum to a guaranteed recurring income payout (or any combination) at claims stage, when you know exactly what you need, says Malan.

Many insurers do not give you a choice of how you want your benefits to be paid out at claims stage and typically an income protection benefit is paid out monthly.

Being able to choose an upfront lump-sum payout is important if you are terminally ill, as you may not live long enough to receive many monthly payments.

Expiry of cover

Disability cover ends at your chosen retirement date, usually 65 years, but how the expiry date is defined is important.

Some insurers define the expiry date of your cover as the policy anniversary date before your 65th birthday, denying you up to a year of cover. Others may define the expiry date as being the end of the month in which you turn 65, or the policy anniversary following your 65th birthday.

Malan warns that the way the expiry date is defined, combined with a waiting period, can effectively leave you without cover for up to two years before your retirement date.