The number is 3 or maybe 4. That’s how many missed pay cheques it would take to sink most South African households. It’s a very sobering thought, isn’t it? If you found yourself in a situation, where you couldn’t earn a living anymore (because of an accident or illness), it could very easily spell bankruptcy.
Protecting your ability to earn an income is probably the single most important thing you can do, if you are employed
Up until the 1st of March 2015, the premiums you paid into an income protection policy were tax deductible. That meant you could have had an income protection policy in place, paid the premiums every month and if you didn’t claim, write the premiums off as a legitimate tax deduction.
Unfortunately, that’s no longer the case. SARS has shut that door firmly, and income protection premiums are no longer tax deductible 🙁
Does that mean you shouldn’t take out the policy?
Responsible people make responsible decisions, and if you run the risk of leaving your family destitute, because you can’t earn a living anymore, your decision to take out a salary protection policy should be an easy one.
We’ve come up with 3 questions you can ask yourself, to work out if salary protection is something you need:
Do I bring home the bacon?
Grab a pen and paper and list all the monthly expenses you are responsible for paying. Do most of the expenses fall on your shoulders? If you are responsible for paying most of the expenses, it’s obvious that one of two things would happen if you couldn’t earn an income anymore:
- Someone else in the family would need to cover those expenses
- Those expenses would simply go unpaid
It’s when important expenses (like your car and bond repayments) simply go unpaid, that things start spinning out of control and you run the very real risk of having your assets repossessed, and a foreclosure sign pinned to your front door.
It’s simple – if you are the breadwinner in your family, you need to protect your salary.
How will my family cope with less money?
Perhaps you and your spouse share the financial responsibilities at home. If you didn’t earn an income, it wouldn’t spell “doomsday”, but the impact would be felt. Which expenses are you prepared to cut and what impact would that have on your family?
- Would you be prepared to pull your kids out of their current schools, in order to cut back?
- Would you be prepared to move from your house, to free up money?
- Which of the cars would you sell to create a positive cashflow scenario?
You might not be the breadwinner, but if you took 50% of your household income away today, things would need to change pretty quickly. Change is uncomfortable and has far reaching consequences (especially when children are involved).
Does my company offer any salary protection, as part of my group scheme?
Belonging to a big company does have its perks. One of those benefits is that most companies have a pension / provident fund in place and linked to that retirement plan is a group risk policy. The group risk policy normally covers everyone in the business and pays out:
- A life cover lump sum on the passing away of an employee, who belongs to the scheme.
- A disability cover lump sum to an employee who becomes disabled.
- An income if the employee is unable to work because of an accident or illness.
You need to check with your HR department if your group risk policy does cover income protection. This is important because your income cannot be covered twice. If your company has you covered, then you don’t need a policy in your individual capacity. If your company doesn’t offer income protection cover, then you certainly need to put a policy in place.
Does my job put me at a significantly higher risk of becoming disabled?
If your job involves sitting behind a desk everyday and catching the Gautrain home in the afternoon, your risk of becoming disabled would be far less than someone who drives on the road from 8AM to 5PM as a full-time sales rep.
Certain jobs have more risk associated with them, than others do. Your need to determine if your job places you at a higher risk of becoming disabled.
If it does, taking into account the answers to the two questions above (am I the breadwinner? & does my company offer income protection benefits?), you should be able to decide if you need salary protection cover, or not.
Our Salary Protection cover includes the following:
- We will pay you a monthly income if you become disabled through illness or injury and are unable to work.
- The payments will start after you have been off work for 3 months.
- We can cover you for up to 75% of your after-tax income (to a limit of R90,000)
- After 12 months we will reassess your disability and if it is permanent, we will pay until you turn 65.
- At the age of 65 and older, no further payment will be made.
It’s time to wise-up and take charge of your financial situation.
Need a quote? Click here.
Until next time.
The Wise About Life team