Income protection products for Covid-19

Financial plans are built for moments like these, the quality of your financial advisor or planner will be evident in this moment. Did they think of all the possible risks that could come up? Does the plan ensure that you are covered for a loss of income or will it leave you stranded, and your assets repossessed? Did you make the right choice picking a tied financial advisor who sells you products offered by the company that employs them instead of an independent agent would have shown you diverse offerings? I have always been a firm believer that the plan comes first, and the product providers and the solutions will come from that foundation. 

writer khotso ramphele

Retrenchment cover has existed for a long time but in 2017 the National Credit Act decided to make it compulsory when purchasing a property. The retrenchment insurance product has always been an interesting product and one of the hardest to claim for. With the pandemic crisis, insurance companies had to do a risk evaluation and significant number of the companies have decided that due to the current crisis they do not have the appetite to provide retrenchment cover to people with existing bonds as that would lead to higher losses than they had initially budgeted for. However, they are compelled to follow the process of providing retrenchment cover to new home loan owners in the process of registering their bond. 

Income protection should be among the discussions when designing the financial plan. This is usually discussed in relation to temporary and permanent disability and there are two types of benefits. One product covers up to two years of temporary disability and the other ceases to pay at the age of 65 years. The waiting period which is from seven days to three months, based on what your pocket can afford. Some product providers have gone the extra mile and designed a sickness benefit, but to access it you would have to be a professional or have a four-year degree qualification. In relation to Covid-19, the waiting period of the income benefit may be longer (up to 3 months), depending on your activities and travel profile, and if your risk is higher, then you’re likely to pay a higher premium. Insurance companies may further go all out and exclude Covid-19 illness claims based on the probability of you claiming on the sickness. 

Severe illness or critical illness cover has always been an interesting benefit because most clients have believe that they aren’t susceptible severe illness, so they tend to be reluctant about this product. So when we, as planners and advisors, contextualise it to clients, we focus on cancer, strokes, diabetes and heart disease. However, due to a lack of knowledge and research, advisors will often fail to tell clients about catch all benefits that will pay on illnesses that may lead to a death within 12 months but that have not been listed by insurers. 

Watch out for the following: 

1. Insurance companies have gone out of their way to say they are willing to assist the client with reducing of benefits and premiums due to the current environment. Some have been honest and informed clients to speak to their financial advisors before doing it. The insurance companies have looked at the loss ratios and probability of claims which now is higher than what they had made assumptions for which would lead to losses. The best way now to reduce the losses would be to decrease the benefits overall. Any financial advisor that tells you to reduce your benefits is one who definitely did not design a financial plan for you.

2. You work for a company that did not survive the lockdown and you have been retrenched. The best claim for loss of income would be the retrenchment benefit that your financial planner has included as part of your benefits. Your financial planner should have spoken about how you would handle retrenchments and how long it takes to settle your income. 

What happens if you test positive for Covid-19 or have been classified as a ‘person under investigation’ in accordance with national institute for communicable diseases guidelines:

1. The best product to have at this moment is the sickness benefit which will replace your income from day one of testing positive. The sickness benefit is seen differently from disability income as most insurance companies do not view Covid-19 is a disability even if it renders you unable to do your job in your nominated occupation. However, some companies will allow the claim will be based on a waiting period of either seven days or 30 days. The implications of a 30-day waiting period for an illness like Covid-19 is that you will not be approved, as you may recover during that waiting period. 

2. Severe illness and critical illness have been interesting, where they are less based on income but based on the lump sum payment being made to you. Some of the insurance companies have stated that they do not see Covid-19 as a critical illness, however, should it result in a critical illness, event it will be assessed under the normal critical illness claims criteria, where the policyholder is in ICU admission for more than five weeks or with assisted mechanical ventilation for more than three weeks. 

This should be the perfect time to be speaking to your financial advisor and ensuring that you have discussed the financial implications of Covid-19, because financial plans and the solutions are not built equal in the time of a pandemic, so they require close scrutiny. This is the right time to ask what you are covered for and why it would not pay out 

– Khotso Ramphele is the founder of My Advizar (Pty) Ltd and authorised financial service provider in terms of the FAIS Act. He has over 15 years in the auditing, accounting, taxation, business consulting and financial planning. Ramphele is a former financial guru at YFM and can be currently be heard on stations like Power FM and Voice of Wits FM speaking about all things money.

– Please note that the information provided above does not constitute financial advice; in fact, we are precluded from giving specific advice. Generic information has been applied given the context of the subject. We have limited details about you and your circumstances — such detail may impact any advice provided.