Most people insure their homes, cars and lives, but overlook the asset that makes all of those possible: their ability to earn an income.
“Our ability to earn income is quite a big asset, because that’s how we generate wealth over the long term,” Crue Invest financial adviser Hannah Myburgh tells Currency. “The question you need to ask yourself is how heavily reliant you are on the income you earn.”
Myburgh is one of three advisers – along with Paul Roux, an independent financial adviser at Sentient Wealth, and PSG Wealth R21 wealth adviser Elke Brink – who rank income protection among the most important, and most neglected, parts of a financial plan.
The cover replaces up to 100% of a person’s net income, tax free, if they cannot work due to illness, injury or disability. Unlike disability cover, which typically pays a lump sum for a defined event, income protection pays a monthly income after a waiting period and can continue until the policyholder recovers, returns to work or reaches retirement age. The two are not mutually exclusive: disability cover can settle debt or fund major expenses, while income protection replaces ongoing earnings.
“As financial planners, we spend a lot of time helping clients grow their wealth, but protecting their ability to earn income is often missed. When we look at financial planning, we look at wealth creation, but we need to protect the downside first before creating wealth,” Myburgh says.
Who needs it
Roux believes virtually everyone who depends on an income should have the cover, particularly breadwinners, people with financial dependants and families relying on a single income. Myburgh singles out young professionals building wealth; self-employed people, freelancers, and contractors without employer benefits or paid sick leave; and business owners whose income depends on their active involvement.
Brink says younger professionals often delay buying cover because they believe serious illness or disability is unlikely. But buying while young and healthy generally means lower premiums and fewer exclusions; waiting often brings exclusions for pre-existing conditions or higher premiums.
Myburgh believes many South Africans are underinsured for income protection and overinsured for life cover. Her reasoning: if someone dies, household expenses generally decrease. A person who becomes disabled and cannot work still needs medical care, food and housing – a financial burden that can be greater than in the event of death.
The cover matters less for retirees, people with significant wealth and employees whose workplace benefits already provide adequate protection – though Myburgh cautions that many employees wrongly assume they are covered through work and never check their actual level of cover.
What it costs
Premiums vary widely with age, health and occupation. Liberty Life says entry-level cover can start at about R100 a month, while professionals in higher-risk jobs may pay several hundred rand more. Momentum says most policies insure 60%-75% of gross income, though some specialist products offer up to 100% for certain occupations. A 35-year-old earning R30,000 a month could expect to pay R500-R800 a month for cover replacing 70% of income, with a one-month waiting period.
Claims are paid only once medical and income documentation is in. Old Mutual says a typical claim requires a completed claim form, medical reports from a treating specialist, and proof of income such as payslips or tax returns. Momentum says assessment usually takes eight to 10 working days once all documents are received; payments begin after the policy’s waiting period and continue until recovery, retirement age or policy expiry.
Bidvest Life’s claims records show the range of outcomes: a 19-year-old student claimed for two weeks after a minor infection; a 69-year-old doctor received 30 days of benefits after a wrist injury; one claimant made 14 claims over 12 years, averaging 42 days each; and an oil rig worker excluded from traditional cover claimed 75 days after a motorcycle accident through event-based cover.
What to look for
Waiting periods are commonly one or three months, Brink says, though some policies offer as little as seven days or as long as 12 months. Shorter periods raise premiums; longer ones mean relying on emergency savings before benefits start. Policies can often pay until an age of between 65 and 70, and longer benefit periods cost more.
An often overlooked feature is whether the benefit escalates while a claim is being paid. Without escalation, a claimant could receive the same monthly amount for decades while inflation erodes its buying power.
Brink urges consumers to read the policy wording carefully. Definitions of disability, occupation-specific cover, illness definitions, waiting periods, benefit duration and exclusions vary significantly, and the cheapest policy may leave important risks uncovered. Common reasons for exclusions or premium loadings include previous injuries or surgery, chronic back or joint problems, family history of major illness, smoking, high-risk occupations, dangerous hobbies such as extreme sports, and mental health conditions. Full disclosure during underwriting is essential to avoid disputes at claim stage, she says.
Rather than recommend one insurer, Roux says each has different underwriting philosophies and target markets: some penalise smokers more heavily; some cater to professionals, medical practitioners, or pilots; others focus on simple cover or offer reward programmes, cash-back incentives or investment-linked benefits. The best insurer depends on the client’s circumstances, occupation, health profile and financial needs.
The biggest mistakes Myburgh sees are confusing income protection with retrenchment cover; assuming disability refers only to severe physical impairment; failing to review employer benefits; choosing policies without inflation-linked escalation; delaying cover to save on premiums; and prioritising life cover over income protection.
Cover should not remain static either, Brink says. As income, debt and family responsibilities grow, it should be reviewed and adjusted; once investment income can fund a lifestyle independently, or at retirement, it may become less necessary.
Myburgh’s priority order for most South Africans: medical aid, income protection, gap cover where necessary, then other risk and investment planning. People spend considerable time building wealth, she says; far fewer protect the income that makes it possible.
ALSO READ:
- Emergency savings: the boring habit that pays off
- Retirement dreams, real numbers: are you truly prepared?
- How to start saving on any salary
Top image collage: Rawpixel; Currency.
Sign up to Currency’s weekly newsletters to receive your own bulletin of weekday news and weekend treats. Register here.
