Will an inheritance affect my income protection payments?

A reader asks

I have been receiving an income from a Discovery Life income protection policy for a few years now since being disabled.

My father recently passed away, and I am now in line to inherit a few million rand.
I am concerned that this may be regarded as “income” by Discovery and my disability income will be stopped.

I do not have a copy of the policy contract.  AS

Is there a general industry rule around disability income and whether it ceases when a person inherits, as opposed to recovers from a disability and is able to work and earn an income again?

I send Discovery copies of my tax certificates each year to review my income. What will happen if I invest the money, earn interest, dividends and even draw an income from it?

Our expert replies

Gareth Friedlander, deputy CEO of Discovery Life, says:

The Discovery Life’s Income Continuation Benefit (ICB) is there to protect the income the policy holder earns for work they carry out. This income does not include money received from other sources. Therefore, there would be no impact on Discovery Life’s ICB plan for any inheritance, interest or dividends received while you are claiming benefits on an ICB policy.  

Here is an extract from the company’s Life Plan Guide ICB section:

8.1 WHAT INCOME CAN BE PROTECTED BY THE INCOME CONTINUATION BENEFIT?

Since the Income Continuation Benefit is designed to protect your monthly income in the event of disability, it is important to define what is meant by income. Income is defined as follows:

• In the case of your being a salaried employee, it shall be your monthly cost-to-company less any PAYE tax, as per your payslip. Note that discretionary bonuses are not included in monthly cost-to-company but can be insured under the Performance Bonus Protector.
• In the case of your being a sole proprietor, partner, member of a close corporation or director of a private company, it shall be your monthly share of fees for services rendered and gross profit from trading activities, less your monthly share of the business overhead expenses and tax. Gross profit from trading activities is defined as monthly sales less cost of sales. The tax is calculated using tax tables and is based on your income not reduced by tax. Where it is difficult to determine your share of the income or expenses of the business, it shall be any income, dividends, loan account repayments and other benefits you derive from the business in your personal capacity, less tax (as per tax tables).
• Income for the purposes of this definition shall exclude passive income from assets such as property or shares in a business acquired purely for investment purposes and where you are not engaged in the management of this business.

The income you claim on your policy may still be aggregated against other income protection policies in the market to ensure policyholders are not enriching themselves. However, even when loss of income claims are aggregated against other earnings, certain exclusions will apply, including:

• Interest
• Rent
• Dividends (however, dividends payable by a private company/close corporation of which you are the owner and in terms of which you actively participate in the management of the company will not be excluded)
• Earnings generated before disability but only received after disability
• Additional payments from the Contribution Protector and once-off lump sum benefit under Long-term Care
• Any payments received from the Performance Bonus Protector.
  
  
  

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