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Hello again fellow parents,
When it comes to children, I’m sure that most parents would list the financial responsibility of raising them among their highest stressors.
Making sure you can support your child – not only emotionally – but financially keeps plenty of parents up at night. In light of our current reality, there are suddenly a lot more questions about what financial stability looks like for parents and their children.
I sought out PURITY Journey Journal App™, expert Priya Naicker to ask about some of the key financial aspects parents needs to consider. Naicker is a personal finance expert at Old Mutual and the spokesperson for education and financial planning.
Priya’s advice was a wake-up call to me about what monetary choices I should really be considering for the future of my child.
Priya, what is the best financial advice you would give parents who are concerned about their child’s future?
Make sure you protect their lifeline. Most parents focus very heavily on educating their kids, and that’s an important focus. But the first step is always protecting the lifeline – and the lifeline is their parents and the parent’s income. If you don’t protect your income, you’re putting your child and your family at risk.
How could I do that?
An important product is income protection, which offers you long term coverage, for instance if you have a disability and you can’t earn an income ever again. But it also offers you short-term protection, so even if you broke a leg and you were off work for two months because of the injury, you still have cover and income protection. That’s particularly important if you’re self-employed, where typically you don’t have leave days and you may not have cover on your pension fund. Protect what you already have, your source of income. If your income is the primary way you’re earning money, you don’t have an inheritance or have won the lottery or have some sort of windfall, it’s vital that you protect what you have.
How should I be thinking about salary, conceptually?
I always like to think of income as a prepaid system. You go into work every weekday, and you work for a whole month, and at the end of that you get paid. But there are various components to that. First, is your ability to work. You need to be able to pitch up, and cognitively and physically you need to be well and healthy and able to produce the outputs you need. Then, you need the company to still exist and to still need your role. The existence of the company and there not being retrenchments needs to be guaranteed for you to receive that payment. Then there also needs to be the guarantee that you will receive payment on a 12-month basis. So, the moment you start to think of income like that, the first thing you start thinking is ‘I have to secure this’. And there’s something really satisfying about putting income protection in place. There’s a peace of mind that just makes it easier to get on with life.
How does income protection differ from an Unemployment Insurance Fund (UIF) payouts?
UIF is a baseline benefit meant to produce short-term relief from being unemployed. The benefits for UIF are usually capped, which could leave you with quite a big gap between your actual income and what you could claim as a benefit. By contrast, income protection covers you for loss of income due to either temporary or permanent loss of employment due to disability or impairment. It could cover a portion of your income or up to the full amount of your net monthly income. Different product providers have different caps on how much they will allow, but you could apply for cover up to your full net income, as long as you’re not covering yourself for more than your net income across insurers.
How does income protection differ from lump sum disability cover?
What’s important is that income protection covers temporary and permanent disability or impairment. So, if you broke your arm and it put you out of work for two months. That’s not a permanent disability, you are going to recover, but you would have cover for that period if you chose that type of income protection. It would pay out that period and it would stop once you’re back at work and you could claim for other things over the period of the policy, whether they are permanent or temporary. If you contrast that with traditional disability cover, lump sum disability cover is usually for permanent disability. If you have a disability that is permanent and you’re not able to work because of that, it triggers a lump sum payment. However, there are a number of costs that you would need to cover with that lump sum. Say, for instance, you lose your legs. You would perhaps need a new house, or you would have to renovate your home for wheelchair access, or you may need a different vehicle – all those things would have to be paid for out of your lump sum, and the sum may not be enough. However, with income protection, you would continue to receive payments up to retirement – depending on the product you chose.
Would income protection cover you for something like the Corona Covid-19 virus?
Yes, it would. But I have to add that while people are concerned about the virus now – and that’s valid – one must remember that there are other illnesses that are as important to cover against.
- Download the PURITY Journey Journal App™ at purityapp.co.za, for more useful advice from PURITY’s panel of experts or if you are not able to take your baby to the doctor during this time, talk to one for FREE.
