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Category Life Insurance

Leading income protection provider makes it easier to put income first

02 September 2020 Gareth Stokes

Ask a South African consumer what life insurance is, and they will most likely respond that it is a policy that pays out a large sum of money upon an insured’s death. This narrow view of life risk benefits is an unfortunate legacy of an industry that was traditionally geared towards selling lump sum life and disability covers. Financial advisers are also guilty of a ‘lump sum’ focus and will frequently offer their clients a bundle of death, disability, and severe illness benefits before considering the need to protect income. Nowadays more and more advisers and product providers are realising that a monthly income stream is the most important asset a potential insured has. And this asset is larger the more paycheques remain until an individual’s retirement.

Cover for unorthodox occupations

FMI, a division of Bidvest Life Limited, has made continuous improvements to its income protection product offering over the years. Each improvement is aimed at offering a better quality of cover to a wider list of occupations. The income protection specialist recently hosted a group of financial journalists to announce that its income protection benefit had been expanded to cover potential insureds who worked as independent contractors, those with secondary or multiple occupations, and unorthodox occupations. Consumers in such situations have typically struggled to get income protection elsewhere. 

FMI is at the forefront of the ongoing battle to ensure that all occupations can qualify for income protection cover. They have made it possible to repurpose what used to be a ‘professionals only’ benefit into one that accommodates individuals who are self-employed, in high risk occupations, or have not yet begun earning an income. “Five years ago, we launched Event Based cover that makes it possible for high risk occupations, such as oil rig workers or divers, and those who are not yet earning an income, such as students, to benefit from income protection cover,” said “Elmarie Samuel, senior technical marketing specialist at FMI. Financial advisers now have the tools necessary to offer expanded cover to a wider group of potential clients. 

Factors influencing income protection premium

An income protection policy is priced according to the risk that an individual presents to the insurer. The monthly premium for someone in a riskier occupation will be higher, all else being equal, than someone in a less risky occupation. An insurer sets the premium with due consideration for a range of risk rating factors that are collected during underwriting, such as age, gender, smoker status, and various medical underwriting tests. These factors aside, the main contributor to the premium charged is the sum insured, or level of income for which protection is being sought. 

Nic Smit, head of product and pricing at FMI observed that many traditional life insurers struggle to price an income protection policy for individuals who earned income in an unorthodox way. “People who work intermittently may be in a low risk occupation; but how they earn their income means that they cannot take out cover, because the insurer does not have mechanisms in place to accommodate fluctuating income streams,” he said. 

Steve Piper, chief distribution officer at FMI, noted that the insurance industry had been wrestling with how to cover people in unorthodox occupations for many years. Changes in the way we work, enabled by technology and accelerated by the ‘work from home’ trend that emerged during lockdown, have made it more critical than ever for insurers to stay agile. “The way we used to conduct business is increasingly outdated, we need to listen to our clients and ensure that we have suitable products in place,” said Piper. 

Future insurability sans underwriting

Another construct shared during the media presentation was that of future insurability, which is built into FMI’s income protection products. This feature allows an insured to make certain changes to the mix of income protection and lump sum cover on their policy, as indicated by their life stage, and without going through additional medical underwriting. “Your cover should be able to adapt according to your life stages,” said Samuel, using life cover as an example. A young employed person may not require a lump sum death benefit because he or she may not have dependents or debt; but he or she may wish to either increase the level of cover or add a death benefit as their circumstances change.

FMI offers two income protection solutions that are designed to cater for different types of occupations, namely comprehensive and event based. “Traditional comprehensive cover can be complicated; but it has a simple underlying condition for claiming,” said Smit. “You can claim while unable to do duties of occupation due to injury or illness”. The insurer will assess the injury or illness based on how it affects the insured’s ability to perform duties of his or her own occupation. An event based cover is based on the average recovery times for a list of more than 200 illnesses, injuries, and surgical treatments. “Our event based cover pays for a set period of time when one of these events happens,” he said, adding that this was an option for occupations that did not satisfy the conditions for comprehensive cover. 

Claims peace of mind

Claims excellence is what differentiates a successful life insurer from the crowd. “Our advisers want peace of mind for their clients,” said Piper. “They want their clients to enjoy claims certainty and the assurance that claiming against the policy will not be a painful process”. One of the ways to ensure a pain free claims experience is to have the right type of cover in place, especially for insureds with multiple occupations or unorthodox income streams. 

A claim against a comprehensive policy becomes tricky if you have two different occupations because the injury or illness may only prevent you from performing one role and not the other,” said Samuel. Another issue arises when the incomes from two different occupations are insured on the same policy, due to insurers using the highest risk occupation to price the policy. FMI solves these problems by protecting each occupation independently and ensuring that the right premium is charged. “You could structure a solution that incorporates three separate policies for three income sources,” concluded Samuel. “Your client will pay the correct premium for the level of risk presented”. 

Insurance for the gig economy

The challenge that financial advisers face is to ensure that their clients have appropriate cover in place. “There are many occupation types that we have not been able to put on cover in the past,” concluded Piper. “We believe that insurance products must adapt to allow all potential clients to get appropriate cover. Our role is to evolve product solutions to match the ever-changing work environment”. 

Writer’s thoughts:
The “income first” proposition shared during FMI’s recent media presentation ties in with the insurer’s philosophy of insuring 100% of your clients’ monthly income. Do you agree with the focus on “income first” or do you proceed with death, disability, and severe illness on the basis that lump sum pay outs can be utilised to replace income streams? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.

Comments

Added by Frederick van Heerden, 02 Sep 2020
Good day, With disability, accident, hospitalisation & long term sickness I agree with Monthly payouts. With death every thing comes to an end....outstanding Bonds & other debt must be payed in one go or sold to clear the debt..... How will the executor of the deceased estate convince creditors to wait another 5- 10 years for their money? Will the Master & Sars be willing to wait?
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