Why risk planning should start with Income First

First published Money Marketing November 2019

Your clients’ income is so much more than just your monthly salary; it’s what supports their plans for today, and their hopes for the future. If their monthly income has the potential to provide for all their financial needs, why doesn’t risk planning start here?

Life insurance is intended to insure South Africans against all major risks, but the majority of product solutions sold are not designed to meet this need sufficiently. Advisers typically default to insuring their clients against death and permanent disability with lump sum benefits, instead of insuring them against their most likely risks such as injury, illness, and critical illness.

As an adviser you have a prime opportunity to positively impact your clients’ future, by recommending cover that will protect their ability to earn an income. It’s up to you to help your clients understand their risk reality, and consequently, the cover they need, to protect themselves from their most likely risks.

The best solution is to start with a benefit that will replace your clients’ monthly income if they’re unable to work due to injury or illness. This product philosophy, which we call ‘Income First’, is effective because it replaces 100% of a client’s hard-earned monthly income when they’re faced with such unfortunate circumstances. In turn delivering on the basic customer need for which life insurance was designed in the first place.

As South Africa’s fastest-growing life insurer^*, we are proving that the Income First approach promises better value for your clients:

• Better cover, with more chances of claiming for your clients. Adding income protection for injury and illness protects your clients’ monthly income against their most likely risks. The numbers speak for themselves. According to FMI’s 2019 Risk Stats, a 32-year-old male has a 91% chance of having a temporary injury or illness during their working career, and a 37% chance of experiencing a critical illness.
• Save your clients money on premiums or get more cover for the same spend. The Income First approach means you can re-think the balance between income and lump sum cover solutions. On average, income benefits have proven a 20% premium saving; and not just today, but over the life of a policy. You can either invest the savings or keep the premium at what it was but give your clients more cover or better claims terms, such as adjusting cover to a shorter waiting period.

Taking the Income First approach doesn’t just provide a superior product that meets customer’s needs, it also offers advisers with advantages at every stage of the process:

• Income benefits mimic the income stream you are trying to replace when planning for an unexpected risk event. This should be easier to explain, and therefore easier to sell.

• They also make policy servicing and annual reviews simpler. As an adviser, you simply need to asses any lifestyle changes and update your client’s policy to match their latest monthly income to ensure they have the correct cover.

• Income benefits mitigate investment and inflation risks too - your clients do not need to worry about investing a lump sum of money, and the future impact of inflation, in order to produce an income.
• And finally, income benefits are proven to support significantly reduced lapse rates. According to FMI, lump sum benefits are 66% more likely to lapse in their first year, compared to income only benefits¹.

The future of the long-term insurance industry belongs to ‘early adopters’, those who appreciate that risk planning starts with protecting their clients’ entire future income, from the day they start working until the day they retire.

¹FMI 2017 Lapse Report

*NMG 2018 Q4 Results: subject to participating providers