Worse than death, Dawn Ridler on Disability Cover

Like many of my clients out there, I always used to think that disability cover was a ‘nice-to-have’ grudge purchase. I couldn’t be more wrong. After life cover for minor dependants and large debt, (a spouse can go out and get a job), it is actually top of the risk list. Somehow it’s okay to spend hundreds on comprehensive cover on a car, but if you happen to be in that car that is ‘written off’ there is a good chance you will be in need of as much panel beating as the car! Okay, so maybe it’s politically incorrect to joke about this sort of thing, but it’s about time someone blew away the smoke and obfuscation (yes, I had to spellcheck that one) surrounding temporary and permanent disability. If you’re in that accident and you die, it’s tragic and if you don’t have life cover your family is going suffer. If that same accident doesn’t kill you but makes you permanently disabled, there is no life cover pay out, no job, no income, higher medical expenses and you are now a dependant. A fate worse than death.

Part of the problem is a historical one. Capital disability in the old days was notoriously difficult to claim from. There are still some cheapskate companies who have a product that hasn’t evolved much, but on the whole, ‘permanent disability’ has improved in leaps and bounds. Temporary disability – which statistically has a far higher probability of having a claim – is a powerful gap filler. There is no point in you going bankrupt in the two years or so that it takes for you to get a permanent disability claim. There is even less point in someone being ‘let off’ from a job because he is stuck in hospital for a couple of months. And yes, they can do that. They will use up your sick leave, then annual leave and put you on ‘unpaid leave’ while trying to prematurely ‘board’ you.

So how does it work? Temporary disability will pay you an income (after 1-6 months depending on the policy), basically on production of a doctor’s note (all this comes with small print, terms and conditions blah blah), but this is just the basics not the specifics. When the condition is “deemed permanent” then either a lumpsum or income kicks in. This ensures an income during your working life. It should be enough to not only pay for day to day expenses, but have enough to save for retirement, as if you were still working.

How much do you need? Replacing a monthly income is easy math. Capitalising that amount in to a lumpsum needs a financial calculator. Either way your advisor should tailor-make the cover to your needs.

Need help? Give me a shout. dawn@kerenga.com. Loads more articles, Frequently asked questions on www.kerenga.com

Author: Dawn Ridler.