FMI CEO, Brad Toerien.
In almost any instance, a customer will intuitively match the products they buy with the needs they’re trying to fulfil. If you are thirsty, you buy something to drink – you don’t buy soap1. Life insurance however, operates in total contrast to this logic.
One of the least understood financial necessities, life insurance is intended to provide financial security in the event of an illness, injury or death. Yet ironically, it’s one of the few sectors where the product a client pays for, doesn’t necessarily meet the need for which it’s purchased in the first place.
Speaking at a series of educational workshops across the country this month, Brad Toerien, the Chief Executive of life insurer FMI, a division of Bidvest Life Ltd, said most people focus on insuring their more prominent risks, such as death and critical illness. This is at the expense of people’s more prevalent risks, like temporary illness or injury, potentially leaving them without an income when temporary disability strikes.
“People face four major risks in life: temporary disability, permanent disability, critical illness and death. Of these, temporary disability is the greatest risk, no matter what stage of your life you’re in. Unfortunately, South Africans tend to insure the wrong things. You’re nine times more likely to have a temporary disability than to have your car stolen or hijacked – and yet, consumers are twice as likely to buy life cover over disability cover, leaving themselves exposed if an illness or injury strikes,” said Toerien.
FMI’s #RealityCheck Consumer Survey 2018 shows that 66% of South Africans spend up to R1500 each month on car insurance, yet the average monthly premium for temporary disability and critical illness is under R2002. Prioritising the wrong cover is dangerous as the impact of a disruption to an individual’s monthly income can be dire for not only themselves, but for those who rely on them too.
Revolutionise the way you give advice
For any customer, the most important part of life planning is to protect their monthly income stream, says Toerien. By starting with a client’s most prominent risk, advisers can not only provide better advice, but simplify their planning process too.
FMI’s Future Income Calculator and Risk Reality Calculator tools can assist advisers to build rapport with their clients and support their record of advice, ultimately reducing advice risk at the same time.
“By protecting 100% of your clients’ income, with a small amount of lump sum for any additional expenses, you simplify the advice process because all you need to know is what they earn. You don’t have to make assumptions around inflation, investments or how long they’re going to live – so it reduces advice risk. It also simplifies planning, because protecting your monthly income is often far easier for clients to understand and relate to,” said Toerien.
According to FMI’s Disability Cover Study, most disability cover (77%) currently sold in South Africa is lump sum cover. However, most claims are not for permanent disabilities or long-lasting illnesses and injuries. 88% of income protection claims with FMI in 2018 were for a period of less than 90 days – meaning that lump sum disability benefits would not have paid out for these claims.
What’s more, FMI data suggests that clients are twice as likely to lapse on a lump sum policy in the first year – putting the adviser’s commission at risk in the process.
Secure a client for life
By choosing a policy with built-in future insurability, advisers can ensure that their clients can adapt their policies as their lives change, with no further underwriting, even if they’ve claimed or their health has changed. That way, a client never needs to cancel their policy because it’s no longer relevant – and as an adviser you can secure a client for life. Using income benefits simplifies a client’s annual review process as well, as all advisers have to do is increase their client’s cover amounts in line with their salary increases.
Toerien says it’s also important that advisers choose the shortest waiting period possible for their clients. For example, estate agents typically only qualify for a 30-day waiting period in the industry. With FMI, they can get a seven-day waiting period – which significantly transforms your client’s likelihood of getting their claim paid.
“Cash flow is critical. That’s why we introduced our 200 defined claim events, where clients get paid for a specified period. Because we pay on meeting an objective medical definition and not on an occupational disability assessment, we can sometimes pay on the same day. It gives you claims certainty and finally, the first 60 days we pay upfront. Happy client, happy adviser,” said Toerien.
To help clients prioritise income benefits and protect their future against injury, illness and death, take FMI’s Reality Check Quiz with your clients here: https://risk-reality-calculator.fmi.co.za/
1FMI True South Report 2017
2 Calculation based on average 30 year old male, non-smoker, net monthly income of R30 000.
