How to effectively protect your income with disability insurance

Disability insurance is a complex and technical area of financial planning that requires more than a cursory glance at your policy wording. With ever-evolving product designs, technical definitions, and a growing number of insurers entering the market, navigating this area can be particularly challenging. As disability awareness takes focus this month, it’s an ideal time to reassess the adequacy of your cover and ensure it aligns with your current lifestyle and financial position.

Start by assessing your risk exposure: Your risk of disability is not static. Life circumstances—debt levels, family responsibilities, career progression, and health status—change quickly and often without much notice. When reviewing your cover, consider what risks you face if a temporary or permanent disability prevents you from working.

Would you be able to meet your financial obligations? Have your expenses escalated since you last updated your policy? Are you the sole breadwinner or reliant on variable income? In addition to economic considerations, factor in lifestyle and occupational risks, such as frequent travel, physically demanding work, or participation in high-risk hobbies. A clear understanding of your exposure will help you determine how much cover is needed and in what form.

Understand what cover you currently have: Once you’ve identified your risks, take stock of your existing disability cover, both personally and through your employer’s group scheme. Carefully check what definitions apply. For example, some policies offer cover only in the event of accidental disability, which excludes any illness-related claims such as those arising from cancer, heart disease, or stroke.

Pay close attention to your income protection policy’s waiting period, which typically ranges from 7 to 90 days, and ensure that you have emergency savings to cover this gap. The shorter the waiting period, the higher the premium, so ensure that your choice is both practical and affordable. Also, review your policy’s expiry age, as some benefits lapse at 60 or 65, while others (such as lump-sum disability cover) may run until age 70. Don’t overlook exclusions that may have been applied during underwriting, particularly if you had pre-existing health issues at the time of application.

 Keep your insurer updated: Material non-disclosure remains one of the leading causes of disability claim rejections. It’s essential to confirm that you disclosed all relevant health, lifestyle, and occupational information when you applied for cover. If your circumstances have changed—such as taking up smoking, engaging in hazardous work, or starting a high-risk sport—inform your insurer as these could impact the validity of a future claim. Income fluctuations may also affect the benefit level you are eligible to receive under an income protection policy, so ensure that this is kept up to date. The underwriting process can feel invasive, but it’s in your best interest to err on the side of transparency.

Factor in the impact on retirement planning: If you become permanently disabled, your ability to save for retirement may be compromised. Without a regular income, you may no longer be able to contribute to a retirement fund, which could have long-term implications for your financial security. One effective strategy is to allocate part of your lump-sum disability cover to replacing these lost retirement contributions.

This involves calculating your projected retirement needs, adjusting for inflation and expected investment returns, and capitalising the required amount. Although income protection is designed to replace earnings, lump-sum cover remains a more cost-effective solution for funding long-term capital needs such as retirement.

 Account for the real costs of disability: Living with a permanent disability can involve a wide range of unexpected expenses, many of which are not covered by medical schemes. These may include modifications to your home or vehicle, prosthetics, wheelchairs, private caregiving, and long-term rehabilitative care.

The nature and severity of the disability will determine the costs involved, but even mild to moderate impairments can create substantial financial strain. When assessing your level of cover, be sure to include a provision for these costs, especially if your family members will be required to provide ongoing care or make lifestyle adjustments.

Review your cover as your finances evolve: Disability cover is not a once-off decision—it must evolve with your financial journey. As your assets grow and debts are repaid, your need for capital disability cover may diminish. That said, be cautious about cancelling cover without professional advice. The older you are, the more costly and difficult it becomes to reinstate cover, particularly if you’ve developed chronic health conditions.

Before making changes, request a comprehensive risk analysis from your financial advisor to determine whether adjustments are appropriate. In many cases, it may make more sense to reduce your cover incrementally rather than cancel it outright.

Final reflections on disability planning: Few of us like to dwell on the possibility of becoming disabled, but thoughtful planning today can prevent financial devastation tomorrow. Comprehensive disability insurance offers critical protection against the loss of income, the erosion of assets, and the burden placed on loved ones. Review your cover regularly, disclose changes honestly, and work closely with a trusted advisor to ensure that your insurance strategy continues to serve your evolving needs.

* Tapfuma is a certified financial planner professional at Crue Invest.

PERSONAL FINANCE