The tide is changing. The industry is evolving. And, as the industry starts to recognise the rising trend to put Income First, so will this better way of doing life insurance become the “new normal”.
“Risk insurance cover with income benefits at the forefront is the most logical way to give advice,” says FMI CEO, Brad Toerien. “Clients typically get paid in monthly incomes, and therefore protecting them with monthly income payments is the most natural and risk-free fit. Protecting 100% of your clients’ income will also 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 – such as emergency operations or a bad case of flu – that can still have a massive impact on financial security.”
Throughout their working career, a temporary injury or illness is your client’s most likely risk1 - and it’s one that can disrupt their entire financial future. Many South Africans fail to appreciate the value of their monthly income, and the extent to which they depend on it: it pays for all they have today as well as the life they’re yet to live; those future goals and ambitions.
It’s time to change the way life insurance is perceived and sold, shifting away from “death cover” and lump-sum-only solutions - to income benefits and living insurance… paving the way for a superior industry standard. An Income First standard.
Toerien unpacks the many benefits of taking an Income First approach:
- SMARTER: With lump sums, figuring out the right amount of cover is never an exact science, because FNAs don’t come with a crystal ball to predict when your clients will pass away, how long their dependents will survive, and the impact of inflation or investment returns. This exposes financial advisers to advice risk and if financial plans aren’t updated regularly, clients could be left underinsured or paying for cover they don’t really need.
- SIMPLER: There is a stunning simplicity in protecting 100% of your clients’ income with income benefits and complementing this structure with a small lump sum amount to cater for any additional expenses. All you need to know is what they earn. And income benefits make servicing the policy simpler in the long term as all you need to do is update the policy with your clients’ latest salary amounts or monthly income to ensure they have the correct cover.
- SAVVY: According to FMI’s 2017 Lapse Report, lump sum only benefits are 66% more likely to lapse in their first year, compared to income only benefits. Where lofty figures such as R5- or R10 million can be difficult to rationalise - income benefits mimic the monthly income you are trying to replace, making your client conversations far smoother. This may be one of the reasons clients hang on to their income benefits – because they relate to income replacement cover, they understand it.
- IRREPLACEABLE: Your clients can’t afford NOT to have income protection. With 72.5% of household income going to servicing debt2, it’s clear South Africans struggle to make ends meet when they are earning an income; how would they manage with any interruption to that income?
DO choose to prioritise income benefits by protecting 100% of your clients’ income across all risk events before choosing to insure anything else. DON’T let poor choices eat away at your value over time.
“Life is about the impact we make on the people around us. As an adviser, you make an impact by protecting your clients’ income. This ensures that they are free to continue uplifting the lives of those they love and care for, no matter what life may throw at them. With cover that puts income replacement benefits first,” concludes Toerien.
1Temporary Disability, unable to work for 14 days or more during working career. FMI Risk Stats 2019
2The South African Savings Institute Dec 2017 SARB Quarterly Bulletin