Income continuation: The cornerstone of financial security

After decades as an overlooked product, income protection insurance is finally coming of age. Tony explores this critical benefit with Daniel Stoch, Head of Research and Development at Discovery Life, uncovering why it deserves prominence in every financial plan, especially for younger clients.

Traditional financial planning focuses on multiples of salary for death, disability, and severe illness cover, but income protection often falls outside these frameworks. Yet the mathematics are compelling: a 25-year-old earning R20,000 monthly net will accumulate nearly R10 million in lifetime earnings by age 65, before factoring in promotions and salary growth. The present value of future income streams makes income protection arguably the most important insurance need at younger ages.

Discovery's 2024 claim statistics underscore this reality. The company paid R670 million to over 2,100 income protection claimants during the year, holding R3.4 billion in reserves for future payments. The data reveals concerning patterns: one in five income protection claims for clients aged 30 and younger are permanent disabilities. Two in five claims occur in clients aged 40 or younger, with permanent disability claims accounting for 67% of total amounts payable despite representing only one in four claims.

Musculoskeletal conditions lead temporary disability claims, back, neck, shoulder pain, and knee injuries keeping clients off work beyond waiting periods. Mental and behavioral conditions account for 13% of female and 9% of male claims. Cancer emerges as a significant factor, ranking as the top-three cause of income protection claims while dominating severe illness statistics.

Daniel emphasizes that income protection and severe illness cover serve different purposes. Income protection maintains pre-event earning capacity, while severe illness addresses post-event lifestyle modifications, home adaptations, hired assistance, specialized treatments. Both are essential components of holistic protection.

The conversation concludes with encouraging news: clients achieving Gold or Diamond Vitality status demonstrate 47% lower disability risk, with engaged Vitality Drive participants experiencing fewer and less severe accidents. Proactive health management delivers measurable claim reduction benefits.

Key Points

The Income Protection Value Proposition

• Lifetime earnings: 25-year-old earning R20,000 monthly will accumulate nearly R10 million by retirement

• Most important at young ages: Present value of future income streams makes this arguably the most critical insurance need early in career

• Growing awareness: Independent financial advisors writing increasing amounts of income protection business

• Traditional planning gap: Often sits outside conventional financial needs analysis based on salary multiples

2024 Claim Statistics

• Annual payments: R670 million paid to 2,100+ claimants in 2024

• Reserve holding: R3.4 billion held for future payments to current claimants

• Lives protected: Over 84,000 individuals covered by income continuation benefit

• Young claimant impact: One in five claims for ages 30 and younger are permanent disabilities

• Frequency distribution: Two in five claims occur in clients aged 40 or younger

• Severity concentration: Permanent disability claims (25% of claims) account for 67% of total amounts payable

Primary Causes of Claims

• Musculoskeletal dominance: Back, neck, shoulder pain, knee injuries lead temporary disability claims

• Mental/behavioral health: 13% of female claims, 9% of male claims

• Cancer significance: Third-leading cause for both genders (11% female, 9% male income protection claims)

• Severe illness correlation: 15% of income protection claimants had prior severe illness claims

• Gender patterns: Males show higher musculoskeletal claim rates, potentially due to risk-taking behavior

Holistic Protection Philosophy

• Complementary coverage: Income protection and severe illness serve different purposes, not competing alternatives

• Pre-event protection: Income protection maintains earning capacity before life-changing events

• Post-event needs: Severe illness covers lifestyle modifications—home adaptations, hired assistance, specialized treatments

• Insurability timing: Take maximum cover early when young and healthy, before conditions lead to loadings or exclusions

• Complete portfolio: Holistic approach combines life, disability, severe illness, and income protection

Vitality Impact on Claims

• Disability risk reduction: Gold/Diamond Vitality members show 47% lower disability risk

• Vitality Drive correlation: More engaged drivers have fewer and less severe accidents

• Behavior interconnection: Clients managing health/wellness tend to manage other risks better

• Unnatural causes: Slight correlation between vitality engagement and lower likelihood of claiming across all categories