Tito Mboweni delivered the 2019 Budget last month, his first ever as finance minister, in a very tough environment. While financial service providers tend to set their focus on retirement and potential tax relief during this period, life insurer FMI is taking a different approach.
As the reality of budget week sets in and the search for extra revenue hits the headlines, the life insurance industry conversation predominantly revolves around the 27,5% tax dispensation rule. Yet the reality is, without securing a consistent monthly income, there is no means with which South Africans can grow their wealth and capital. Funding a retirement plan becomes unattainable without a monthly income; and the immediate worry becomes the individual’s ability to pay for ongoing daily expenses.
Insurer, FMI, a division of Bidvest Life Limited, highlights the importance of protecting one’s most valuable asset – the ability to earn your entire future income.
“Income benefits are a better fit to approaching life and living insurance [as opposed to once-off lump sums], they are much cheaper, and they are far easier to plan for in an unpredictable future,” says FMI CEO, Brad Toerien. He explains that it’s an approach that gives clients better cover, removes the inherent risks in managing a large lump sum of money, provides cover in a way people actually think about their lives and their money, and saves them a significant amount of premiums, where the savings can then be used towards investment or RA contributions.
A person’s income stream can be extremely volatile throughout their career. Not only are interruptions in income a real possibility, but there is no way to guarantee that it will increase consistently year-on-year. All too often, customers underestimate their retirement needs due to unforeseen costs and inflationary changes such as rising medical expenses. In reality most South Africans aren’t financially prepared to retire at age 65 or simply don’t want to stop working yet. Individuals are living longer, healthier lives with higher life expectancy, which means post-retirement money needs to go further and last longer. “We want to change old financial planning habits to keep up with this new reality” – says Toerien.
FMI believes life and living insurance products should provide a combination of monthly income and lump sum benefits in the event of an injury, illness, or death. Income benefits are ideally suited to meeting ongoing monthly expenses, while lump sum benefits provide for any once-off costs like settling large debts or estate duty.
During budget week, FMI has set off on their financial adviser roadshow to discuss the latest advances in future-proofing risk cover. “Because people’s needs change at every stage of life, future-proofing injury, illness and death cover gives clients options to change cover when they need it – with no restrictions, even if they’ve claimed or their health has changed,” explains Toerien. “Our aim is to reduce any anxiety advisers and their customers may experience as their financial needs change over the course of their life by enabling the flexibility to increase, decrease and add benefits to their policies no matter the stage of life or circumstances.”
In essence, risk planning is in place to protect your ability to accumulate wealth, despite negative health events potentially stopping your ability to keep working. And investment planning is about protecting and growing that wealth so that you don’t have to work when you get older. “In many ways, they’re both about protecting your income – protecting your ability to earn now, and create an income for you in future years,” concludes Toerien.
The budget speech and the outcomes thereof will most likely have a direct impact on your finances, but FMI believes that despite the extra financial pressure, protecting your income first and foremost should always remain a priority for all working South Africans, no matter your stage in life.