Protecting your clients’ most important asset – their income

By: Clyde Parsons, Chief Innovation Officer, BrightRock

We all know that South Africans are underinsured, especially when it comes to income protection. The latest Life and Disability Insurance Gap Study, published by the Association for Savings and Investment South Africa (ASISA) in 2022, showed that the average South African income-earner – as reflected in the study – had a life insurance shortfall of at least R1 million and a disability cover gap of about R1.4 million. According to the study, South Africa’s 14.3 million income earners included in the study had enough life and disability insurance to cover only 45 percent of the total insurance needs of their households.  

This means, in real terms, that for the average household supported by at least one income earner, living expenses would have to be cut if the earner died or became disabled, and no other source of income could be found. The study shows key focus areas and highlights the insurance needs of income earners of different ages, genders, and living in different provinces. 

The question is what our industry can do about it. As a financial adviser, you can play an invaluable role in helping your clients access cover that can precisely match their needs at the start of the policy and can then change with them as their needs change. If a client’s most important asset is their ability to earn an income, it’s imperative that they protect their income through efficient cover that can protect their future paycheques (either through a lump sum or recurring pay-out). 

The first step to protecting your clients’ income is to consider both their temporary and permanent disability needs through cover that protects clients’ pay cheques should they suffer an illness or injury that interrupts their income stream, whether for a short period or until they would have expected to stop working and actively earning a salary. If their income is fully protected in the event of a temporary or permanent disability, it means that a pay-out will see to it that they can still meet all of their financial obligations, even if they can’t actively go to work.  

With an income that’s comprehensively covered, clients will still be able to pay for medical aid, children’s school fees, fund their retirement, pay off their bond and other debts, and maintain their standard of living. Income protection is therefore an essential mechanism that holistically supports a person’s overall financial plan as it makes sure that in the case of an unexpected health event, their other financial goals will still be on track. An income protection product should be able to pay out either as an income benefit, or as a lump sum in the case of permanently disabling events, and ideally give clients the option between the income payments and the lump sum at claim stage.  

At BrightRock, we believe in helping clients close the insurance gap by enabling advisers to structure their clients’ policies appropriately from the start, thereby giving them cover that can match their needs exactly. This avoids unnecessary waste, and helps the client buy as much cover as is needed when they need it most, which is right now. Cutting out waste is vital to ensuring appropriate coverage.  

While traditional products in the market offer lump-sum cover that increases over time, a client’s income needs tend to behave very differently to that. If you were to look at a lump-sum disability benefit as being the present value of the future pay cheques that clients are protecting, clients’ needs actually decrease over time. They need less disability cover the closer they get to their retirement date, as the number of pay cheques they need to protect reduces. 

A further consideration that we at BrightRock believe to be critical, is flexibility when it comes to their pay-outs. For example, if a client chooses lump-sum cover for their permanent expense needs with BrightRock, they can change this choice to a recurring pay-out at claim stage or to a combination of a lump-sum and an ongoing monthly income. This is key as it allows clients to choose the best pay-out for their situation when they have insight into how long they’re likely to live, what their personal financial situation is, and what the current economic conditions are. 

With the appropriate cover, which you can help your clients get with your great advice and products that can match their income protection needs, it is possible for them to close the gap and get more comprehensive coverage.