Recommended monthly income-protection benefit to cover expenses if you cannot work.
Recommended monthly benefit
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Net monthly income
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75% of net income
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The risk most people insure last and need most
South Africans insure their cars without a second thought and their lives if a bank insists, but the thing most likely to wreck a household budget is a long illness or injury that stops the earner working. Income protection answers that. It pays a monthly benefit while you cannot work, often right through to retirement age if the disability is permanent, so the rent gets paid and the children stay in school. This calculator sizes that monthly benefit honestly, using your real take-home pay rather than a round guess, because insuring the wrong number leaves you either short when you need it or paying for cover you can never claim.
The logic rests on a quiet rule of the local market. Insurers cap income-protection benefits at roughly 75 percent of your take-home pay. They do this on purpose, because a tax-free benefit equal to your full after-tax salary would leave you financially better off staying home, and no insurer will write that moral hazard. So the sensible target is the higher of your essential monthly expenses and about 75 percent of your net pay, less anything you already hold.
Sizing the benefit on a R45,000 salary
Take someone under 65 earning R45,000 a month, with essential expenses of R28,000 and no existing cover. The tool annualises the salary to apply the SARS PAYE tables, then converts tax and UIF back to monthly. On R540,000 a year the annual tax after the primary rebate this calculator applies is about R114,032, near R9,503 a month, and UIF adds R177.12 at the ceiling. Net pay is about R35,320. Seventy-five percent of that is R26,490. Because essential expenses of R28,000 are higher than the 75 percent cap, the tool recommends R28,000, the larger of the two, as the monthly benefit to aim for.
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The chart shows the two candidate figures and which one sets the recommended benefit.
Waiting periods, escalation, and the tax twist
Two design choices change the price and the value of the cover. The waiting period, sometimes called the deferred period, is how long you must be disabled before the benefit starts, commonly one, three, or six months. A longer wait cuts the premium but demands a bigger emergency fund to bridge the gap. The escalation rate decides whether your benefit grows with inflation while you are claiming, which matters enormously over a claim that could run for twenty years. There is also a tax point worth knowing: modern income-protection benefits are generally paid tax free in the claimant's hands, which is exactly why insurers cap them below your gross salary. Treat the 75 percent figure as the planning assumption this tool applies and confirm the current treatment and any caps with your insurer and SARS.
A common mistake is to insure gross salary. If you target your full R45,000 you will be declined or over-insured, because the benefit is measured against take-home pay. Another is forgetting employer group cover, which can already provide a slice and should be subtracted before you buy more.
Is income protection the same as disability cover?
No. Income protection pays a recurring monthly benefit while you cannot work and usually stops when you recover or retire. Lump-sum disability cover pays a single capital amount on permanent disability. Many people hold both: the monthly benefit keeps the lights on, the lump sum settles the bond or funds adaptations.
Are income protection premiums tax deductible?
Under the current rules the premiums are not deductible and the benefit is received tax free. This reversed an older position where premiums were deductible and benefits were taxed. Because tax treatment has changed before, confirm the latest position with SARS or a tax adviser before relying on it.
Does UIF not already cover me if I cannot work?
Only partly and only briefly. UIF pays an illness benefit for a limited period and is capped against a remuneration ceiling, so for most earners it replaces a small fraction of income for a short time. Income protection is built to carry a long or permanent disability that UIF was never designed to cover.