What is income replacement insurance?
This is insurance that will pay you a monthly income if you become disabled and you are no longer able to earn an income.
There are usually two kinds of income replacement insurance policies:
- Those that pay a lump sum
- Those that will pay out a monthly income
According to an IOL article: “If you have policy that pays a monthly income, the life insurance company carries the risk of ensuring you are paid each month and it is more likely that the benefit will be aligned to the income you earned before you became disabled.”
You also have the option of taking out a lump sum that will pay off your debts and will help you modify your home or car to suit your disability.
Why you need income replacement insurance:
Working in the South African job market means that you are essentially competing with thousands of people who are looking for a job. If you lose your job, you could face an uphill battle and a frustrating process trying to get another one.
While this can be challenging, it can be even more worrisome having to think about how you would make a living if you became disabled.
In South Africa, there are a number of financial institutions that offer income replacement insurance. This type of insurance can be helpful by providing cover for temporary disability. It can help supplement your income if you are partially disabled.
Income replacement policy premiums are tax-deductible.
Some “whole of life” policies are being introduced, giving you protection against the costs of impairment even after you’ve retired. . In addition, most policies will cover you until you reach the age of 60 or 65, while some have cover to the age of 70, as more people are extending their working life.