By: Grace Winter, Chief Marketing Officer at FMI (a Division of Bidvest Life Ltd)
Goosebumps. The feeling I get when watching the sunrise over the beautiful Durban sea as I sit on my veranda with my morning cup of coffee. There are so many aspects to living in South Africa that we can be grateful for. Our country is outrageously beautiful. We have incredibly passionate people, and vibrant cultures.
That being said, for the average South African, times are tough. Finance Minister Tito Mboweni’s February 2020 Budget Speech brought some relief for exasperated consumers, but we are not out of the woods yet. If we’re going to ride out the storm, it’s more important than ever that we help clients protect their income and balance their lifestyles against the struggles of a tight and unpredictable economy.
For the adviser community, this is actually good news: it’s a major opportunity to make an impact on the lives of ordinary South Africans by helping them optimise their financial plan, and protect their income first and foremost – against the risk of injury, illness or death.
The most likely thing that’s going to happen to any client in their working lifetime is an illness or injury; the least likely is death. If your client is self-employed, they may lose out on their income for all the days they’re unable to work. If they’re salaried, they may lose out when their sick leave runs out. In an already tight budget, how would they withstand a break in their income? What are the options available to protect against these risks, and what are the consequences of each?
With household pay cheques already under huge pressure, it’s critical that your clients prioritise correctly: where do they compromise? Which type of insurance should they select first? You know the story. You work on a thorough financial needs analysis for your client, only for them to turn around and say “Great – I get it, but I can only afford half those premiums”. That’s where the advice process really gets critical. How do we help clients make some hard decisions in a world where affordability is limited?
At FMI, our starting point has always been to protect our customer’s income before anything else. Think of it as being the foundation layer in a Maslow’s hierarchy of financial planning. It’s arguably more important than medical aid. We need our income to pay all our other insurance, annuities, household expenses and school fees. The key is to get your clients to see their income as more than just a monthly salary: their income stream supports their lives, ambitions and dreams. But far too many people are unaware that solutions like income protection are even available.
Perhaps these statistics will help you and clients prioritise their risk cover. 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 illness1. At the same time, FMI’s 2018 #RealityCheck Consumer Survey shows that a staggering two-thirds of respondents would completely run out of money within three months of losing their income. Clearly, something’s got to change. It’s to make Income First the new normal.
Another risk planning point to note is that people need more cover for if they are permanently unable to work, than if they pass away. If you’re disabled, you still need to feed yourself and your family. Yet, the amount of Life cover sold is more than two times that of Disability cover2.
In a tight economy, clients will look at cancelling their insurance before they consider cancelling their DSTV. It’s critical that we help our clients understand the value of their accumulative future income – not just their monthly salary today. Find out how much your clients will earn over their working career with FMI’s Future Income Calculator. Also check out our Retirement Calculator which can even help show what a mere three months of lost income will do to your client’s retirement savings.
There are a number of advantages for both customers and advisers to taking the Income First route.
- Meet the real need. Income benefits replace what a client needs: they mimic a monthly income stream – taking care of all monthly expenses and repayments.
- Saving opportunities. Income benefits are typically cheaper than traditional lump sums. This opens up opportunities for the customer to either get more coverage for the same spend, or add to their retirement annuity, or savings.
- Less cancelations. FMI experience shows that income benefits policies are far less likely to lapse. For the customer, this indicates they value their income protection policies. For advisers, you get to protect your commission, reducing the risk of nasty clawbacks. It’s also a reputational benefit to advisers, because you are seen as the ‘protector’ of the client’s interests.
- Unique sales opportunities. If a client has existing lump sums in place; you can supplement their lump sums with income benefits. With Income Protection – you significantly increase their chance of claiming; because injuries or illnesses aren’t required to be permanent, as is the case with disability lump sums. What’s more –with a critical illness income benefit, you can question your clients’ need for a lump sum, which is widely known to be one of the priciest risk benefits in the market. This could save your clients thousands of Rands a year. Lastly, there are many bespoke opportunities with Life Income. Life Income on a two-year term allows for estate liquidity, or you can use Life Income to protect your clients’ ability to pay for their kids’ education and day-to-day expenses after they’re gone.
We all want to protect our future. Start today by advising your clients on an Income First approach with FMI.
1Temporary injury/illness stat – risk of being unable to work for longer than 14 days due to illness or injury before age 70. Critical Illness stat – risk of being diagnosed with a critical illness before age 70.
2FMI Disability Cover Study 2016.