Income-first approach pays off


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 soap. Life insurance however, as it currently stands in South Africa, operates in total contrast to this logic. This is according to FMI’s 2017 True South study1.

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 recently, 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 permanent disability, at the expense of their more prevalent risks, like temporary illness or injury – potentially leaving themselves 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 9 times more likely to have a temporary disability than to have your car stolen or hijacked2 – 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 would be under R2003. Prioritising the wrong cover is dangerous – 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 in one-go. 

FMI’s Future Income Calculator and Reality Check Quiz tools can assist advisers 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 your clients 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 also simplifies a client’s annual review process, as all advisers have to do is adjust their client’s cover in line with their salary increases.

Toerien also suggests 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 7-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 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 the first 60 days we pay upfront. Happy client, happy adviser,” said Toerien.

Have confidence in the cover you provide, by choosing to prioritise the type of insurance that protects your clients against all of life’s risks. Start seeing life insurance as an opportunity to protect your clients’ monthly earnings and the future income they are yet to earn. 

1FMI True South Report 2017

2FMI Claim Stats 2018

3Calculation based on average 30 year old male, non-smoker, net monthly income of R30 000.