As a highly specialised area of financial planning, reviewing your disability cover demands far more than a quick scan of your policy schedule. The market is saturated with new product variations, emerging insurers, complex terminology, and shifting definitions of what qualifies as a disability—making this one of the more intricate fields to navigate. In this article, we provide advice to policyholders on how to evaluate the cover you have in place to ensure that it aligns with your needs.
Understand your evolving risk profile
One’s personal and financial circumstances are constantly shifting – often more quickly than one realises. To properly assess your disability cover needs, consider the risks you face if illness or injury were to prevent you from earning an income. Has your debt increased since taking out your cover? Could you settle your liabilities if you were permanently disabled today? Have your living expenses escalated? Lump-sum disability cover remains an effective way to pay off debt and protect your estate, but it’s essential to consider how your income would be replaced in both temporary and permanent disability scenarios. Whether you are the primary breadwinner, self-employed, or dependent on variable income, your income replacement strategy must reflect your current life stage and liabilities. It’s also important to assess your lifestyle and occupational risks: do you travel frequently, work in dangerous areas, or participate in high-risk recreational activities?
Key takeaway: Many policyholders underestimate the likelihood of disability from illness, so ensure your cover extends beyond accidents.
Take inventory of your existing cover
Once you’ve assessed your risks, evaluate the policies you currently have in place, including any disability cover you may have through your employer’s group scheme. Be sure to read the fine print carefully to understand the definitions and scope of cover. For example, ‘accidental disability’ cover only applies if your injury results directly from an accident within a defined period. This means that disability that results from an illness, such as that resulting from a stroke or cancer, would not be covered under this type of policy. Examine the waiting periods on your income protector and ensure that you are able to self-fund this period from your emergency fund. Many income protection policies now offer flexible waiting periods ranging from 7 to 90 days, depending on affordability and occupation. Shorter waiting periods generally mean higher premiums, so weigh up your options carefully. Be sure to check for any underwriting exclusions and whether your cover is term-based or whole-of-life.
Key takeaway: Understanding the exact definitions and waiting periods in your policy is essential to ensure you have adequate coverage when you need it.
Be honest: Disclosure matters more than ever
If it’s been several years since you implemented your disability cover, ensure that your insurer has been kept up to date with any changes in your lifestyle, occupation, or health. For example, if you’ve started smoking, changed careers, or taken up a high-risk sport, it could materially affect the terms of your cover. Also be aware of how income changes influence your income protection benefits. Failure to disclose material changes—even after inception—can result in claim repudiation. The medical underwriting process may feel invasive, but erring on the side of full disclosure is always safer.
Key takeaway: Complete transparency with your insurer is critical to avoid claims being rejected due to non-disclosure.
Think long-term: Disability and your retirement plan
One of the most overlooked consequences of permanent disability is the potential interruption of retirement savings. Your ability to earn an income is what enables you to contribute towards your retirement goals, and without it, your future financial independence may be jeopardised. For this reason, a portion of your lump-sum disability cover should ideally be allocated to replacing your future retirement contributions. To do this effectively, capitalise the amount required using inflation-adjusted projections, assumptions about investment returns, and your intended retirement age.
Key takeaway: Include provision for continued retirement savings within your disability planning to secure your long-term financial stability.
Account for the true cost of living with a disability
It’s easy to underestimate how expensive life can become after a disabling illness or injury. Depending on the type and severity of disability, additional expenses may include home modifications, vehicle conversions, prosthetics, mobility aids, private caregivers, and long-term therapy. Importantly, these costs are often not covered in full by medical aid schemes. Emotional, logistical, and financial support for caregivers is another layer of complexity to consider, so be sure to factor these realities into your disability planning.
Key takeaway: Adequate disability cover should factor in significant additional costs for lifestyle adjustments and caregiving that medical aid may not cover.
Disability cover is dynamic, not static
As your net worth grows and your liabilities decrease, your need for capital disability cover may decline. For example, once your bond is paid off and your retirement savings are on track, you may be able to reduce or cancel certain policies. However, never cancel long-term insurance cover without first obtaining a comprehensive risk analysis from a qualified advisor. Securing new cover later in life is often more difficult and expensive.
Key takeaway: Regularly review your disability cover to align with changing financial circumstances, but proceed cautiously before reducing or cancelling cover.
Disability is not something we like to think about—but planning for the unthinkable is what defines sound financial planning. A comprehensive disability plan offers the assurance that your financial obligations will be met, your lifestyle protected, and your loved ones shielded from financial strain.
Have a fabulous day.
Sue
