Suddenly unable to work? These insurance products can give you peace of mind

31 Oct 2024

There are two products on the market that can help remove most of the financial risks that come with dealing with being unable to work owing to a medical crisis.

Question

A colleague has recently been diagnosed with cancer. He is going to be unable to work properly for at least three months. The company will pay him his basic salary while he is off but, as the bulk of his income comes in the form of commission, which is dependent on his ability to work, he will be in trouble financially.

What can I do to ensure that I do not end up in this situation?

Answer

It is hard enough having to deal with a medical crisis without having the added financial stress. There are two products on the market that can help you remove most of these financial risks:

1 Income protection

This is designed to ensure that your after-tax income continues even if you are unable to work. The product does, however, come in many forms and you need to get the right one for your specific needs.

Some companies only cover your fixed monthly income whereas others will consider commission flows and various side-gigs in the calculation of the benefits that you can insure. In your instance, it seems that the company is insuring your basic salary, so you should take out insurance cover on the average commission flows that you would be receiving.

This benefit usually kicks in if you’re unable to work for a month and ceases when you are deemed well enough to go back to work or when you retire.

It is certainly a product that I would recommend for all working people.

2 Critical illness

In addition to not receiving his full income, your colleague is also going to suffer financially in the form of medical costs. No matter how good his medical aid is, there will be costs that will need to be paid by him. These would typically be the out-of- hospital blood tests and X-rays, as well as follow-up visits in the doctor’s rooms.

Over the course of an illness, these costs can really mount up.

I would suggest that you consider getting critical illness cover that pays out a lump sum of money when you are diagnosed with a critical illness. There are some things that I would recommend you look at when you take out the cover:

Ensure that it is a standalone benefit.

Many companies couple this benefit with life insurance, which usually becomes unnecessary when you retire.

Ensure that it covers you for the whole of your life.

There are cheaper products that cease at the age of 65. As the likelihood of you claiming increases dramatically from the age of 65, I would recommend that you ensure that you are also covered when you are on pension.

As one in 10 of us is likely to live to 100, the chances of us getting a serious illness during our 35-year retirement are really high.

The additional out-of-pocket medical expenses can devastate an already tight retirement budget.

Ensure that your premium pattern is not age-rated.

Insurance salespeople often use age-rated premium patterns to get you a cheap initial premium. However, as you get older, the premiums can increase by 13% a year, making it unaffordable in years to come.

Insider tip

Many companies offer critical illness cover as part of the employee benefits structure. This cover typically ceases when an employee retires from the company. I would therefore recommend that you take out whole-of-life cover in your personal capacity while you’re still young and healthy.

As you can see, the clever use of a couple of insurance products can ensure that your family remains on the same financial trajectory regardless of what happens to you on the health front. DM

Kenny Meiring is an independent financial adviser. Contact him on 082 856 0348 or at financialwellnesscoach.co.za. Send your questions to [email protected].

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Business Maverick

Question

Answer

1 Income protection

2 Critical illness

Insider tip