Advising beyond unforeseen circumstances
Insuring against the consequences of a serious illness may seem an unnecessary expense, especially when budgets are under extreme pressure, but surviving a serious illness and living with it may be a much greater drain on a client’s finances than dying from the illness.
A recent study by Zurich Insurance Group (Zurich) found that most people underestimate their personal risk of becoming unable to work. The Income Protection Gap Survey was carried out by market research company Epiphany based on a representative sample of consumers aged 18 to 70 in Germany, Ireland, Italy, Spain, Switzerland and the UK.
A perceived notion
Half of more than 6 000 respondents in Germany, Ireland, Italy, Spain, Switzerland and the UK believe their personal risk of losing their ability to work is less than 10%.
With 25%, Germany has the highest percentage of people who are unable to work during some time in their working lives. In Spain and the UK, it is 16%, in Ireland 13%, in Italy 7% and in Switzerland 6%. Interestingly, respondents in general see a significantly higher risk that others will become disabled than they see for themselves.
Respondents are unaware that the probability to become work-disabled during one’s working lifetime – whether due to an accident or other causes – may be as high as 25%. Seven in 10 respondents believe that they would have significantly less household income if they became disabled. Yet they say that they would need at least the equivalent or more to maintain their current lifestyle.
Older age groups are perceived as having the highest risk of becoming unable to work across countries. Statistics show that in Ireland, Italy, Switzerland and the UK those older than 55 carry the highest risk, while in Germany, men aged 47 to 51 and women aged 45 to 47, have the highest risk of becoming work disabled. In Spain the average age of those no longer able to work is 51.
Fear of financial situations
Three out of four respondents believe that they have sufficiently protected themselves from becoming work disabled. Yet only about one in five have income protection insurance in their households. There are major differences between countries: in Italy, Spain and the UK, people are less likely to have income protection, while about one-third of Germans and Swiss have it.
If they became work disabled, people in Ireland, Italy and Spain would most fear not being able to support their families and becoming a burden to their loved ones. The former is also a concern for the Britons and the Swiss.
Filling the insurance gap
According to Neill Müller, Head of Retail Life Insurance Product Development at Momentum the trend is very similar in South Africa because, in general, working citizens do not insure 100 per cent of their income. However, statistics indicate that there are about 12.4 million working South Africans. Of these about 52 000 are likely to become permanently disabled in the next year. That’s 142 every day.
FAnews interviewed to Gareth Friedlander, Head of Research and Development for Discovery Life about the trends in South Africa and what challenges the industry faces. Friedlander mentioned that the challenges faced by the industry in South Africa is the lack of awareness within consumers around the need for income replacement and the value of these products. Affordability is also a major challenge as income replacement benefits tend to be relatively expensive.
According to Friedlander True South Actuaries published a survey analysing the disability insurance market in South Africa and the most recent update to this survey made the following key conclusions:
- Only 40% of clients’ permanent disability needs were insured, whilst between 12% and 27% of clients’ total needs were covered upon temporary disability.
- Sales of temporary disability cover have steadily increased since 2008.
- There is an over-reliance on lump sum disability cover, as opposed to income protection cover which accounts for 18% of new disability sales.
“The conclusions outlined above from the survey show that the value of disability insurance products is not fully appreciated by consumers. Insurers have enhanced income disability products significantly over the last few years and are focusing on increasing take up of these benefits. However, given that these are relatively expensive compared to lump sum disability benefits, take up still remains relatively low. Continued efforts to create awareness around the value and importance of income replacement products will help reduce the insurance gap,” said Friedlander.
“Financial advisers have a very important role to play when it comes to ensuring that clients are not only aware of the various financial risks that exist but also understand how they can best protect themselves against these risks,” said Neill.
Friedlander said, “It is crucial that clients’ portfolios are assessed to ensure that clients are appropriately covered under the new tax regime, and that their expectations are met throughout the policy term. It is incredibly important that advisers make their clients aware of the value of income disability products, as illnesses or injuries may prevent clients from being able to earn an income resulting in dire consequences on their lifestyles.”
Editor’s thoughts:
It is concerning that many clients are cancelling cover as they can no longer afford it due to budget constraints and the state of the economy. However, it is also a scary thought that an unforeseen circumstance may occur at any given time and cause havoc. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za
