Practically every adviser out there has seen the scenario: a client dies or is unable to continue working due to injury, illness, or disability. They, or their families, get a lump sum payout, which quickly gets depleted, leaving the family unable to meet their monthly obligations.
This is just one of the reasons why we’ve got to change the way life insurance is thought about and sold in South Africa. In a country where every working individual supports themselves and an average of 3 dependents, we’ve got to be doing more to shift the focus from traditional lump sum payouts to a more efficient structure that pays out as a monthly income.
The Covid-19 pandemic was a tough reminder for South Africans that they cannot afford not to budget for the risk of losing their monthly income. Consequentially, there’s been a tangible shift amongst South Africans who recognise the importance of protecting their hard-earned income. In 2022, there were over 200x more Income Protection claims lodged than Disability Lump Sum claims2.
The fact is that income benefits solve what matters: protecting your clients, their businesses, and their families against unexpected expenses incurred due to illness, injury, disability, or death. They are also much easier to understand and plan for because they mimic the income stream your client is trying to replace.
The challenge with lump sum payouts is that it’s difficult to know how much cover your clients need when they take out a policy, and there are clear investment, longevity, and inflationary risks. While lump sums are great for settling debts or once-off expenses, they aren’t as well suited to providing your clients with what they need – a replacement for their monthly income stream.
This is where the opportunity lies for financial advisers. Income protection is an easy sell for new clients who understand the financial impact even a minor injury or illness can have. While simpler to understand and typically more affordable, income protection is also more effective because your clients are more likely to claim compared to other benefits. In 2022, Bidvest Life paid 89% of all lodged, unique income protection claims. The main cause of the remaining 11% of income protection claims not being paid was for clients claiming within their waiting periods.
Income protection should be the first step in any financial plan, but not enough consumers are aware that such a product even exists. Financial advisers have a key role to play in ensuring their clients know their real needs and risks and are covered correctly. More South Africans need to hear the message that by prioritising income protection benefits, they are protected from life’s curveballs and have claim certainty.
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