Will my insurer cover me if I am retrenched?

Angelique Ruzicka looks at the complexities surrounding income protection insurance and finds out whether providers cover retrenchment as part of their benefits.

You never know when unexpected injuries or illnesses may occur to stop you from working and earning an income. These life changing moments, while perhaps temporary could still create major financial upheaval for you and your family.

Income protection and disability cover will pay out if you cannot work for a short period of time (say couple of weeks if you need to recover from a car accident, for example) or you are permanently unable to perform your occupation due to illness or injury. It’s a necessary product to take out, particularly if you have dependents that rely on your income, say the experts.

What does income protection insurance include and exclude?

Income protection insurance pays a regular income every month that can replace your income for the period that you are unable to work, which can be a relatively short period or until you would have retired. “If you select a product that covers you for the whole of your life, and you have an impairment at retirement, it can pay even past your retirement age. The pay-out is made if you cannot work for an extended period or you are permanently unable to perform your occupation due to illness or injury. It can also pay a temporary disability income and cover overhead expenses for individuals who run their own business or professional practice,” explains Karen Bongers, product development actuary at Sanlam Individual Life.

A sickness benefit included in some income protection offerings, like Sanlam’s, is particularly important since most people only have limited paid sick leave days. But it’s even more beneficial for self-employed and freelancing professionals who don’t get any paid sick leave.

“Make sure that you choose a true sickness benefit – one that requires only a sick note to claim, as opposed to a benefit that only offers a degree of sickness cover. There are some that specify various additional requirements before a claim will be accepted,” says Bongers.

While many insurers offer this kind of protection in the event that you become disabled or injured (temporarily or permanently) it won’t cover you in the event that you become retrenched. If you are going through retrenchment read our story here about how you can cope during this difficult period.

Also take note of any waiting periods that your insurer is likely to enforce. Make sure that you can cover your income through the waiting period with your savings. Get a financial advisor to help you get the right cover if you feel the waiting periods you are being made to follow would be too onerous on your pocket.

What am I likely to pay?

The premium differs according to individual risk and amount of cover chosen. But let’s look at the hypothetical example of Sarah aged 30 who earns a R40, 000 salary who buys income protection cover through Sanlam. She’s an actuary and a smoker and she pays an annual premium escalation of 5%. She could get income protection cover, which includes an extended disability income policy. It would cover her for R30, 000 a month for a monthly premium of R176.40.

Who offers it?

Most insurers, such as Sanlam and Old Mutual offer general income protection. There’s also smaller providers like Frank.net that offer the product. Only a handful (PPS and Sanlam) offer a pure sickness benefit.

The key is to shop around and get the best amount of cover that you can afford. Talk to a financial advisor or broker if you are uncertain about the product or not sure about which provider to go for.