Income protection should be the priority when it comes to life insurance for every income-earning South African – and financial advisers play a key role not only in educating their clients about the cover available to them, but also to foster a broader conversation in the industry around the benefits of income protection.
Too few clients understand the value of insuring their income before anything else, which means many individuals are left unable to take care of themselves and their loved ones when they experience injury or fall ill during their working lives, says Leza Wells, chief product actuary at life insurer FMI (a division of Bidvest Life Ltd).
“As an industry, we should educate our clients about the need to protect themselves against their most likely risks, which are injury, illness and critical illness. It’s important for clients to protect their monthly income stream so that they can claim when they need it most,” Wells adds.
Critical as it is, income protection currently makes up only 6% of all individual risk policies written by the industry – as opposed to nearly 50% of all individual risk policies written by advisers who support FMI[1].
FMI’s 2020 claims statistics highlight the company’s belief that income benefits meet consumers’ major challenges in a pandemic-ridden world, while FMI’s 2018 RealityCheck consumer risk reality survey shows that a 32-year-old client has a 91% chance of having a temporary injury or illness during their working career and a 37% chance of experiencing a critical illness. The survey also reveals that a staggering two-thirds of respondents would run out of money within three months of losing their income.
The pandemic has also highlighted the need for greater education around life insurance cover. Apart from the fact that many customers are not insuring their most prevalent risks, they don’t always understand the terms of their cover, which can lead to disappointment when it comes time to claim.
It’s critically important for clients to know precisely what they are covered for, and how long, says Wells. For example, clients often assume a long-term disability will result in a lumpsum disability pay-out. However, this cover only pays out if their disability is permanent and their doctor confirms that their condition won’t ever improve. FMIs claims experience confirms that to ensure that clients are fully covered, they must have temporary income protection, which pays for up to 24 months, as well as extended income protection. This will ensure they will be paid a monthly income for as long they cannot work.
“Collectively, insurers and advisers have a responsibility to ensure our clients fully understand concepts like income protection benefits and how waiting periods work. They must be aware of other useful additional products such as childbirth benefits and critical illness cover for their children. They need to be familiar with how claims processes work to facilitate quick pay-outs,” says Wells.
“Ultimately, clients must know that their best bet is to speak to a financial adviser. By prioritising income protection, advisers can ensure their clients have claim certainty, which fosters better long-term relationships – and helps them make the right financial choices for peace of mind.”
[1] Source: Swiss-Re New Business Volume Survey 2018
