A possible risk that we all face during our life time is that of becoming disabled due to an accident or illness. In some cases you might still be able to work, but if your disability is so severe that you can’t continue working, you will need some form of income to cover your monthly living expenses. That is what disability cover is for. Speak to a qualified financial planner to determine your disability and dread disease cover needs. The benefits and conditions will differ from one company’s individual policies to another.

Why you need disability and dread disease cover?

Disability and dread disease cover provides for the replacement of your income as well as for additional expected medical costs as a result of your becoming disabled or contracting a dread disease or critical illness. Unlike death cover, disability and dread disease cover is aimed at providing benefits for you to keep your standard of living during your lifetime.

How long will I receive the income for?

Disability benefits can be structured as lump sum payments to settle liabilities and the balance can be invested to provide an income or can be purchased as a monthly income disability benefit which will provide a monthly income in the event of disablement. A monthly income disability benefit will pay until one of the following:

  • You recover from your disability.
  • You die.
  • You reach the benefit cease age.

What type of disability and dread disease cover is available?

  • The benefit can be paid out as a disability replacement income whereby you will receive a monthly income.
  • This amount is usually 75% of your earnings at the time of disablement, which is less income than you were earning.
  • Lump sum disability benefits are normally paid as a once off lump sum amount in the event of total and permanent disablement and these amounts would need to be invested to provide a sustainable long term income.
  • Dread disease cover usually pays out a lump sum.

When does the policy pay out?

  • You can only receive the benefit if you are deemed to be disabled in terms of the definition of disability specified in your policy or Company Disability Scheme.
  • Generally there is a waiting period of six months before your benefit will be paid out. This period will vary depending on your policy or Company Disability Scheme.
  • Ensure that you have emergency funds set aside to provide you with an income during the waiting period.

How much disability and dread disease do I need?

You need to sit with a qualified financial planner to work out:

  • What you currently have from your personal policies and employee group benefits.
  • The amount of income your dependants need in the event of your no longer being able to provide.
  • Remember to consider:
    • Repaying or servicing debt.
    • Household expenses.
    • Medical costs.
  • If you have children you should also think about future education expenses.
  • Provision for future needs and lifestyle changes.

Once this all has been taken into consideration, your financial adviser will be able to calculate what level of income your current disability and dread disease cover will provide and how much additional cover you need to buy to meet your ependants’ specific income needs

The risk of under-insurance

As you get closer to retirement, a financial loss can have a significant impact on your retirement savings. Speak to a financial planner and make sure that you are insured for anything that could take money out of your retirement savings.