Shield against risks

2010-10-30 09:54

The biggest financial risk Farrah runs is not death, it is disability. As she has no dependants, having cover that pays out in case of her death would not be that important.

However, what if she had a bad car ­accident and couldn’t work again?

Her ability to work is, quite possibly, her most valuable asset as it is the ­accumulation of all those salary cheques over the next 40 years.

The idea of taking out insurance against disability cover is to make sure you have sufficient income to live on without having to rely on the state or members of your family. This can ­provide you with some independence in the event that you can no longer earn an income.

What is disability cover?

Essentially, it is insurance that kicks in if you are disabled and can no longer perform your job.

You may suffer impairment – lose a limb, say, or lose your hearing – but that may not prevent you from working. If you can’t earn employment income at all you are considered disabled.

Farrah might be worried that disability cover will be expensive, but there are lots of products she can choose from, to suit her needs and her budget.

Generally, younger people will pay lower premiums as they have a lower likelihood of becoming disabled and claiming, or dying in the case of a life policy. The lower the risk, the lower the premium.

For example a quick search on the ­internet shows that Farrah could get R1?milion of disability cover for just R76?per month. But she would need to understand exactly what it covered and when it would pay out:

Monthly income protection
This can be either permanent or temporary. If permanent, it pays out a percentage of your salary until you reach retirement age.

Temporary income protection covers you for about two years. It is important that you check if your disability benefit escalates yearly. If it does not, inflation will negatively affect your payment down the line.

Comprehensive or accidental

Some policies for disability or life cover will be accidental policies.

What this means is you will only be covered if the cause of the disability or death was an accident. So if you have a vehicle accident and become a paraplegic you would be able to claim. If however you have a stroke which causes your disability this is not accidental and you would not be covered.

Comprehensive disability will provide a payment regardless of the cause of disability or death and, as such, is more expensive.

Lump sum
A capital or lump-sum benefit means you get a once-off, tax-free payout. This is not to replace lost income but should be used to settle debt and help with lifestyle adjustments that are required as a result of your disability.

Examples would be to settle the bond or make modifications to your home or vehicle to assist your disability.

Own or any occupation

Own occupation disability pays out if you can no longer work at your own occupation?– for example a surgeon who loses a hand.

Any or reasonable cover will only pay out if you can’t work at your own or any other reasonable occupation.

Own occupation cover tends to be more expensive.

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