Understanding Income Protection Cover Benefits

As an ex financial advisor, this topic is very close to my heart. Without the policy I took barely a year before illness rendered me unable to continue my career, I would have been financially lost at this stage of my life.

What Is Income Protection Cover?

Income protection cover, also known as disability income insurance, provides you with a monthly income if you are unable to work due to illness or injury. It helps you maintain your lifestyle by replacing a portion of your salary during the period you’re incapacitated.

Key Features

Monthly benefit: Typically pays around 75% of your gross income.
Waiting period: The time between becoming unable to work and the start of benefit payments (e.g., 30, 60, 90 days).
Benefit period: How long the payments continue (e.g., 2 years, 5 years, until retirement).
Definition of disability: Can vary from own occupation (unable to do your specific job) to any occupation (unable to do any work).

Tax Implications on Premiums

For individuals: Income protection premiums are generally not tax-deductible for personal tax purposes in South Africa.
For businesses: If premiums are paid by a business for an employee as part of a remuneration package, they may be deductible as a business expense.

Tax Implications on Claims

Benefit payments received: Are usually treated as taxable income for the claimant and must be declared as income on your tax return.
This means the monthly payouts will be subject to income tax at your marginal rate.

Why Is This Important?

Understanding the tax treatment helps you plan effectively:

Knowing premiums aren’t deductible means you pay with after-tax income.
Expect to pay tax on claim proceeds, so the actual amount you receive may be less than the gross benefit.

Tips When Choosing Income Protection Cover

Consider the tax impact when budgeting for premiums and benefits.
Look for policies with indexed benefits that increase with inflation.
Check the policy’s definition of disability to ensure it matches your needs.
Discuss with a tax advisor to optimise your cover in your financial plan.

Final Thoughts

Income protection cover offers vital financial security during tough times but comes with important tax considerations. Understanding these will help you make informed decisions and avoid surprises.

Tell us your story on this topic, and let us all learn from one another.

By suletta - Get Financial Savvy

Welcome to Get Financial Savvy Little did I know when I enrolled for my postgraduate qualification in Financial Planning that, within a year, I would be diagnosed with a dread disease. I almost gave up on the idea of completing the course, fearing that the added stress might worsen my multiple sclerosis. But a wise client — a professor at Groote Schuur Hospital — encouraged me to put my shoulder to the wheel and just do it. Two years later, after many relapses, I had no choice but to stop working. My neurologist was concerned about the frequency of these relapses, and as with most autoimmune conditions, stress played a major role. I stopped working at the same time the world was hit by COVID-19. At first, I didn’t feel “left out,” since everyone else was confined too. But now, five years later, I’m grateful to be in a remission phase — and ready to start a new chapter. Encouraged by my friends and family, I’ve decided to share my knowledge of financial planning and help demystify the legal and technical terms that can feel so overwhelming. My journey into the world of finance began decades ago, translating a rate book from English to Afrikaans for National Mutual — long before computers were introduced in South Africa. That experience gave me a strong foundation, teaching me the basics of every financial product word by word. Over the next 40 years, I built a career as a financial advisor, received numerous awards from various insurers, and had the privilege of working with incredible clients and dedicated administrative staff. I hope you’ll enjoy the building blocks and bits of wisdom I’ll be sharing — real-life lessons, stories, and insights gathered from a lifetime in the world of finance.

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