Income Protection Explained

,
Income protection is designed to replace lost income when you are unable to work due to injury or illness. It is aimed at compensating the insured for financial losses caused directly by the inability to work.

Why you need Income Protection

At a younger age, you have many more years of your working life ahead of you, and therefore more earnings to lose should you become disabled. If you do not have disability cover, you will be forced to rely on parents for an income. You will also use your retirement money until it is gone.

Income Protection covers help you do the following:
  • Maintain your standard of living.
  • Buy groceries and other everyday items.
  • Continue to pay your rent/mortgage.

Types of Income Protection

Temporary Income Protection

Temporary disability is more common than permanent disability. Usually, salaried employees would be eligible for between 20-30 days sick leave in a 2-3 year cycle. People who are temporarily disabled for a period exceeding their sick leave will have to take unpaid leave. Temporary disability can cause big income losses.

Where lump sum disability insurance only provides cover for permanent disabilities, income protection can pay out for temporary disability as well.

Permanent Income Protection

When ‘permanency’ is established, your income protection will pay out either until you’re able to go back to work, or until the end of the policy term, retirement or death.

How Income Protection Pays Out

Amount of Cover

The level of income cover is based on a percentage of your income, typically between 50%-75%, but can be increased to 100%. This amount pays out tax-free.

Over-Insurance

The possibility of Over-Insurance must be considered. Income Protection provides a person with insurance against the loss of their earning capacity; it does not put them in a better place financially. If this is allowed, an incentive to claim or to become disabled and avoid returning to work may be created. Applicants are therefore requested to provide details about all current insurance policies so that the insurer can make a proper assessment at the application stage.

Occupational Definition

Life insurers use different definitions of disability to determine whether they should payout:

Own occupation:
This measures your ability to perform your particular occupation. Note that ‘own occupation’ does not refer to your current employment or specific job, but rather to your profession, trade, field or business in general.

Own or any reasonable alternative occupation:
This definition measures your ability to perform any occupation for which you are reasonably qualifiedbased on training, education and experience.

Any occupation:
This definition measures your ability to perform any occupation, irrespective of training, education and experience. This is the strictest definition, and you need to be severely disabled to qualify for benefits under this definition.

Waiting Periods

It is important to remember that income protection policies don’t necessarily payout as soon as a claim is made. You need to wait for a pre-agreed period to pass, known as the ‘Waiting Period’.

You can select to have a waiting period of, for example, 7 days, 1 month and 3 months. If you choose a very long waiting period, you’ll need to be certain you’d be able to get by on your sick pay, or that you have enough savings to cover all your expenses. This is why it is always a good idea to have an Emergency Fund in place. Short waiting periods are more expensive as the likelihood of claiming is higher.

How to choose the right cover

It is important to talk to your financial adviser regularly. Your adviser will help you determine your income protection needs. Independent Financial Advisers are able to compare all available solutions and recommend the one best suited for your needs.
Factors that will affect your application for income protection included:
  • Basic information. Things like age, gender, income and occupation will factor into your premium costs.
  • Medical conditions. If you have pre-existing medical conditions, such as diabetes or kidney problems, or if you’re a smoker, your insurer will need to know. Sometimes they will require a copy of your medical history.
  • Other relevant information. If there’s anything that you think might affect your cover, such as if you’re planning to switch to part-time work in the near future, you should let your insurer know.
Financial independence has two components – Wealth Creation & Wealth Protection. Without the necessary Wealth Protection measures in place, you will not achieve financial independence.

Contact Us and plan your financial independence.

Phone: +27 21 914 7480
Cell: +27 82 893 2795
Email: info@tvc.co.za

For more relevant financial information, advice and tips, follow us on:

Related Articles

  • Documents, Blog, Insights

    Trusts Explained

    Trusts can be a powerful financial tool – but they’re also widely misunderstood. We unpack what trusts are, why they matter, and how they can help protect assets and build generational wealth – specifically in the context of South Africa.
    Justin Els/
    1 July 2025
  • Financial Adviser

    Why should you talk to your financial adviser regularly?

    Why should you talk to your financial adviser regularly? Here we provide 9 reasons to engage with your financial adviser. Financial Freedom starts here…
    Justin Els/
    31 March 2025
  • Compound interest in the real world

    For most of us, it’s been a few years since we first heard this term in school. Let’s recap on what is meant by “compound interest”…
    Justin Els/
    31 March 2025
  • Wallet-Friendly Holiday Tips

    Tips for managing holiday spending and bouncing back financially post-festivities: strategic choices.
    Justin Els/
    28 March 2025
  • Conversation, Financials

    Short Term Insurance Explained

    Understanding your insurance terms and small print is important, but we don’t always have the time to do so. This blog article explores this and offers some tips, applying mostly to short-term insurance.
    Justin Els/
    28 March 2025
  • Personal Finance 101: Financial Planning for Families

    In the latest episode of our Personal Finance 101 Podcast, we cover: “Financial Planning for Families.” Starting a family demands an entirely new set of financial strategies, foresight, and priorities.
    Justin Els/
    28 March 2025
  • Asset Classes Explained

    ‘Asset classes’ is a term that describes groups of securities that act similarly in the marketplace. There are several different asset classes, but for individual investors, the most important are equities, bonds, cash and alternative.
    Justin Els/
    31 March 2025
  • Vote

    TVC’s Economic Review of Quarter 1 2024

    The state of the economy impacts you in a tangible way – even more so if you invest. Globally, The Markets were mostly positive in Q1 2024, while the local markets were influenced by uncertainty over the national elections.
    Justin Els/
    28 March 2025
  • Personal Finance 101: Building Wealth for Millennials

    When it comes to wealth creation, millennials have had it particularly tough. In this episode, podcast host Certified Financial Planner® Justin Els offers practical financial tips specifically aimed at millennials.
    Justin Els/
    28 March 2025
  • GAP Cover Explained

    By subscribing to gap cover, you protect yourself and your family against this financial disparity, potentially avoiding significant out-of-pocket medical expenses.
    Justin Els/
    31 March 2025