Why do I need Permanent Income Protection and Capital Disability?

Many people believe that with Capital Disability they are properly covered for permanent disability. The truth is that a once-off lump sum benefit is not suited to replacing a future monthly income stream (one of the main reasons for taking out Income Protection cover).

Designed to ensure continuity of income over time, in line with inflation, Permanent Income Protection pays out a monthly income, until the Insured’s retirement or death (whichever is sooner). This means that the inflation, investment, and longevity risks for this kind of cover are held by the Insurer and the premiums are tax deductible. Permanent Income Protection has established waiting periods and pays out for long temporary disabilities. Therefore, it is designed to replace future income, sustaining the Insured’s lifestyle until the selected retirement age.

A Capital Disability benefit, in contrast, means that the client will receive a once-off lump sum pay-out for permanent disability only. Permanence of your disability must be established before this pay-out is made. The premiums for this cover are not tax deductible. Capital Disability cover should be used for once-off events such as repaying debts, business assurance, or making necessary lifestyle changes.

It is important to understand that Lump Sum Disability and Permanent Income Protection are different products with different functions and they should be used in conjunction rather than as replacements for each other. FMI advocates a combination of these two products, drawing on the strength of each to ensure comprehensive cover for permanent disability. Read more about the importance of Permanent Income Protection here:http://www.fmi.co.za/emailnewsletters/FMIAdHocFAOct12.pdf