Question

A colleague has recently been diagnosed with cancer. He is going to be unable to work properly for at least three months.  The company will pay him his basic salary while he is off. But, as the bulk of his income comes in the form of commission, which is dependent on his ability to work, he will be in trouble financially.  What can I do to ensure that I do not end up in this situation?

Answer

It is hard enough having to deal with a medical crisis without having the added financial stress.  There are two products on the market that can help you remove most of these financial risks:

1. Income protection

This is designed to ensure that your after-tax income continues even if you are unable to work.  The product does, however, come in many forms and you need to get the right one for your specific needs.

Some companies only cover your fixed monthly income while others will consider commission flows and various side gigs in the calculation of the benefits that you can insure. In your instance, as it seems that the company is insuring your basic salary, so you should take out insurance cover on the average commission flows that you would be receiving.

This benefit usually kicks in if you’re unable to work for a month and ceases when you are deemed well enough to go back to work or when you retire. It is certainly a product that I would recommend all working people have. Your ability to work and bring in an income is a much more important risk to cover then insuring, say, your motor car.

2. Critical illness

In addition to not receiving his full income, your colleague is also going to suffer financially in the form of medical costs. No matter how good his medical aid is, there will always be costs that will need to be paid by him.  These would typically be the out of hospital blood tests and X-rays as well as follow up visits in the doctor’s rooms.  Over the course of an illness, these costs can really mount up.

I would suggest that you consider getting critical illness cover which pays out a lump sum of money when you are diagnosed with a critical illness.

There are a couple of features that I would recommend that you look at when you take out the cover:

• Ensure that it is a standalone benefit.

Many companies couple this benefit with life insurance which usually becomes unnecessary when you retire.

• Ensure that it covers you for the whole of your life.

There are cheaper products that cease at the age of 65.  As the likelihood of you claiming increases dramatically from the age of 65, I would recommend that you ensure that you are also covered when you are on pension.

As one in ten of us are likely to live to 100, the chances of us getting a serious illness during our 35 year retirement is really high.  The additional out of pocket medical expenses can devastate an already tight retirement budget.

• Ensure that your premium pattern is not age rated.

Insurance salesman often use age rated premium patterns to get you a cheap initial premium. However, as you get older, the premiums can increase by 13 percent a year making it unaffordable in years to come.

Insider tip

Many companies offer critical illness cover as part of your employee benefits structure.  This cover typically ceases when you retire from the company.  I would therefore recommend that you take out whole of life cover in your personal capacity while you’re still young and healthy.

As you can see, the clever use of a couple of insurance products can ensure that your family remains on the same financial trajectory regardless of what happens to you on the health front.