First published FAnews October 2019
Life is a whirlwind for 32-year old Mark, but in a good kind of way. He and his wife have just had a baby, and as an estate agent in a tough property market, he needs to put in those extra hours but it’s paying off and he’s doing well.
He and his wife are about to buy their first home and sign on the dotted line, so Mark goes to see his financial adviser John, to find out what life cover he needs to put in place. After discussing Mark’s lifestyle changes, John presents him with a full Financial Needs Analysis. Based on future inflation and investment return assumptions, John recommends R9,4 million Disability Lump Sum cover, R950 000 Critical Illness Lump Sum cover and R9 million Life Lump Sum cover at a premium of R5 100 a month1.
Mark balks at the figure. He can’t afford that. He only averages R30 000 a month in earnings after tax. To meet Mark’s budget of roughly R3 500 a month, John settles on R6.5 million Disability Lump Sum cover, R650 000 Critical Illness Lump Sum cover, and R6.5 million Life Lump Sum cover1.
There is a better way to do life insurance. One that prioritises income benefits over lump sum benefits, one that commits to meeting the needs for which your clients apply for cover in the first place.
Protecting 100% of your clients’ income will ensure that they’re not just protected in the case of a permanent disability, critical illness or death, but for more likely temporary risk events that can have an equally disastrous effect on their financial security - both in the foreseeable future and over the long-term.
With all this in mind, John (the financial adviser) contacts Mark and tells him they need to rebalance his cover to an Income First approach so that he has all his bases covered.
Using the Future Income Calculator, a useful tool developed by FMI, John shows Mark that he will earn a staggeringR55 million over his working career2. He points out that this is the sum that should be insured, and it needs to be insured not only against death, disability and critical illness but also against temporary injury and illness.
Furthermore, by using FMI’s Realty Check Quiz, John is able to show Mark where his real risks lie. At his age, Mark has a 91% chance of a temporary illness or injury compared to only a 37% chance of a critical illness, 15% chance of permanent disability and 14% chance of death, before retirement3.
Mark contemplates these numbers and asks how he’s going to afford R55 million worth of cover when he can’t even afford R9 million. “Easy,” John says. “By protecting your monthly income first.”
John adjusts Mark’s cover to protect 100% of his income - both temporary and long-term - and in the event of death. He adds Critical Illness Income, which pays 130% of his Temporary Income Protection cover for up to 12 months. And includes R500 000 Disability and Critical Illness Lump Sum cover, and R1 million Life Lump Sum cover, to take care of any additional once-off expenses. All this for a premium of only R3 500 a month1. His cover with FMI is also future-proofed to ensure that he can change his policy as his life changes, without further medical underwriting, even if he claims or his health has changed4.
In addition, with FMI, Mark has access to the world-class Medical Second Opinion (MSO) service and CI Assist at no additional charge5. With MSO, he can receive an independent review of any diagnosis and treatment plan from a selection of world-leading medical centres. Moreover, with CI Assist, he has access to a suite of benefits to the value of R50 000 to help him and his family with the emotional toll and the day-to-day stresses if he’s ever diagnosed with a critical illness.
By taking an Income First approach, you as an adviser, are offering product solutions that address all your clients’ risk-benefit needs, no matter what phase of life they’re in, making your advice and relationship, indispensable. Join the Income First movement and be a part of the new industry normal.
Mark’s story is an example and is not to be construed as the provision of advice. Customers should always consult with a financial adviser for advice.
132 years old male, non-smoker, level premium, retirement age 70, As & When commission.
2Retirement age 70, 6% nominal growth. FMI Future Income Calculator is available at www.fmi.co.za.
3 Risk over working lifetime to age 70 – FMI Risk Stats 2019. FMI Reality Check Quiz available at https://risk-reality-calculator.fmi.co.za
4Financial advisers can speak to an FMI consultant for more information on FMI’s future insurability benefits.