FANEWS – Feature
Author: Nic Smit, Chief Product Actuary
As we forge ahead into 2024, the economic landscape continues to present formidable obstacles for South Africans.
With the prices of essential goods surging and wage growth stagnating, disposable income has dwindled forcing consumers to cut back on spending to focus on essential items. In this climate, life insurance is increasingly being perceived as a discretionary cost, leading many South Africans to either forgo opting for cover entirely or to scale back on their benefits.
As a financial adviser, your role in filtering your clients’ financial needs is critical, and it’s your expert guidance that will help them balance their affordability constraints against their risk needs. While conducting a Financial Needs Analysis (FNA) is important at the planning stage, actively listening to your clients is the first step toward understanding their immediate needs and building trust around how to alleviate their lifestyle pressures. This process begins by tackling their most prevalent risk: the potential loss of income due to illness or injury.
Combine income and lump sum benefits
How you structure your clients’ life insurance benefits is key to ensuring that they and their beneficiaries are sufficiently provided for in the event of needing to claim. According to Bidvest Life’s 2022 Claims Report, income protection claims accounted for 58% of total payouts in 2022 – more than for the rest of its portfolio combined.1 And, while a 30-year-old male has only a 15% chance of passing away before the end of his working years, there’s a 91% chance of him being unable to work for a period of two weeks or more during his career.2
FNAs, while helpful in assessing lump sum requirements, make assumptions around future interest, inflation and annuity rates, and can fall short in accounting for beneficiaries’ longevity, thus potentially resulting in beneficiaries’ long-term needs not being adequately catered for. Additionally, there’s a potential risk of beneficiaries mishandling lump sum payouts.
Income protection pays out up to 100% of the insured salary monthly when a policyholder is not able to work due to an illness or injury, whether temporary or permanent. This approach ensures a sustainable source of income to cover monthly expenses like medical aid, insurance, bond, and kids’ school fees. Income protection also continues to unlock value for financial advisers as a means of catering for affordability challenges and superior claims processes for your clients.
By integrating a combination of income protection and lump sum benefits into your clients’ portfolios, you can offer them, their families, and their businesses a more robust safety net, ensuring that they can effectively address significant once-off expenses while maintaining financial stability.
As an industry, we can utilise digital tools to enhance this process and educate our clients. Bidvest Life’s Risk Reality Calculator asks basic questions to determine a variety of potential scenarios like a temporary absence from work due to illness or injury, a critical illness diagnosis, disability, or premature death before retirement. Offering personalised information enables us to better influence and convert our clients; bridging the gap between life insurance and the millions of South Africans who could benefit from its protection.
By embracing technological tools and demonstrating genuine empathy when listening to your clients’ needs, you empower your clients to navigate life’s uncertainties with confidence. This approach creates an environment where the appropriate mix of life insurance benefits becomes not just a luxury, but a pillar of financial resilience.
References/Disclaimer
- Bidvest Life 2022 Claims Report
- Non-smoker. Retirement age 70. 2019 Risk Reality Survey
*Non-smoking male performing a non-manual occupation, 30 day waiting period, 5% premium escalation T’s and C’s apply.
