South Africans are underinsured for disability

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"What we have found is that when people become disabled, they are no longer able to earn a salary, which means they are no longer able to save," says Jaco Gouws, risk product manager at Old Mutual. To add to this challenge, Old Mutual's experience is that people claiming for disability are relatively young - an average of 45 years of age.

"If you think about it, 45 is right in the middle of your working life," adds Gouws. "If you are disabled and unable to work, you can no longer save. What usually happens is that you either dip into your retirement savings, depend on your loved ones or rely on the government's disability grant, which is currently R1,350 per month."

He says that people in general are covered for only 25% of their risk cover needs and many of us don't have cover at all. This could mean that your income will drop from R10,000 per month to R2,500 if you become disabled and unable to earn an income.

Breakdown of claims

A recent claim statistics guide released by Old Mutual showed that R3.1bn in claims was paid to the group's retail customers in 2013. This was made up of:

• Death claims - 76%
  
• Illness and physical impairment claims - 13%
  
• Disability claims - 11%
  
• Retrenchment claims - less than 1%

A further complication is that many who cover themselves against permanent disability, forget or don't think about temporary disabilities. "Take mountain biking, for example," says Gouws. "A lot of people actively participate in this sport and the risk of suffering a fracture is high. Most of these injuries are temporary and require only a short recovery period, but this could mean weeks or months without an income.

"A recent study found that 93% of South Africans are underinsured for temporary disabilities and rely mostly on their savings to absorb this event. You are also 40 times more likely to suffer a short-term disability or illness than a long-term one. It is therefore important to protect your earning ability for not only the long term, but also the short."

Two options

Income disability cover pays you a monthly income if you cannot work because of a temporary or permanent illness or injury. This monthly income is designed to help you replace any lost income. Lump sum disability cover, on the other hand, pays you a once-off amount, but only if you cannot work because of permanent illnesses or injuries. The lump sum can be used to pay for once-off disability related expenses and you can reinvest the remaining funds to provide you with an income.

Gouws says that in the past the majority of people preferred a lump sum product, but there is a shift towards income disability as it covers both short and long-term disabilities. If you choose a lump sum product, it is important to add temporary cover. This will protect your financial plan against both types of disability.