About seven out of 10 people will suffer a temporary disability in their lifetimes and an income protection policy helps ease the burden
Not all income protection policies are created equal, and being aware of key features to look out for can avoid disappointment and a financial shortfall at claims stage.
An income protection policy pays out your income, or a percentage of it, when you are unable to work. It typically offers better protection against loss of income than a lump-sum disability cover, but you need to navigate some policy pitfalls.
You need to make sure your insurer covers you for both temporary and permanent disability — many severe illnesses can put you off work for long periods, but because you are most likely to recover, you will not qualify for permanent disability benefits.
You are much more likely to suffer a temporary disability than a permanent one, with statistics from life insurer FMI showing that seven out of 10 people will suffer a temporary disability in their lifetimes.
But even with temporary disability cover, you could be out of pocket with a claim if a life assurer requires you to prove loss of income or if your insurer reduces the income it pays by the payments you receive for work you actually did in previous months, industry experts say.
Schalk Malan, CEO at life company BrightRock, says there are two common practices in the life assurance industry that can delay or reduce the income you are expecting to receive when you claim under your income-protection policy.
The first is the requirement that you prove your loss of income and the second is known in industry jargon as “aggregation against active income”. Aggregation against active income is the practice some insurers use to reduce the income you claim based on income you receive for work you carried out in the months before your illness or injury, he says.