You might be working for an employer offering disability insurance, and it is most certainly one of the best types of cover for you. However, it’s a benefit that’s overlooked by many employees.
If your income protection benefits are provided as part of group benefits, check whether they are based on your pensionable income, which can be lower than your taxable income by 30 percent or more.
What Is Disability Cover For?
It’s there to ensure your family are covered financially if you’re not able to work due to injury or an illness. Accidents can happen at any time and the same goes for illness. You never know when you’re going to need a safety net.
If you were unable to work because of an illness or injury, how would you pay for your expenses? With disability cover you can protect your biggest asset – your ability to earn an income.
You Can Use The Tax-Free Payout To Help Cover Costs Such As:
- Replace lost income – continue to afford everyday expenses like food, clothing, electricity
- Pay off debt – reduce or settle home loan and retail accounts
- Cover once-off costs related to your impairment or disability – install wheelchair ramps for your home and car, buy prostheses
- Ongoing expenses – pay for a caregiver, a nanny to look after your children, or business expenses
Different Types Of Disability Cover
It is available both as a lump sum pay-out and in the form of monthly payments through income protection products. It’s important to consider whether you will choose one over the other, or a combination of both.
Lump sum products pay a single amount in the event that you are permanently unable to work. This amount must be sufficient to fund your lifestyle for the rest of your life.
A combination of lump sum and monthly income benefits is generally recommended, depending on your particular situation and affordability.
How Much Cover Do I Need?
Disability cover benefits are tailored to your individual needs.
Life insurers need to know what you earn in order to insure you against the loss of your income. Base the benefit on your after-tax income if you are a salary earner.
If you are self-employed, be sure to declare income you can prove you earn by way of your income tax return.
However, remember that this needs to be income you can prove you are earning and are declaring for tax purposes.
