Financial planning is a creative process. A successful financial plan relies on team work and requires both the adviser and the client to form a partnership for each party to understand one another’s role in the process. More importantly, a financial adviser needs to look beyond being a purveyor of products and endeavour to understand the unique needs of his or her clients.
Financial planning, especially when adopted early in a client’s working life makes a massive difference to the level of wealth and security that clients will enjoy. With regards to life, critical illness, income protection and disability cover, the best time to consult with a financial adviser is when a client starts their first full-time job.
What are the advantages of taking out a policy early on in life?
Critical illness cover
Statistics tell us that people are commonly getting Dementia 10 years earlier than they were two decades ago. In fact, people are more and more diagnosed with the disease in their late 40s compared with their early 60s, two decades ago and the trend is continuing. Along with this, there is a steady increase in the number of claims for critical illnesses with specific reference to cancer which affects 100 000 people on an annual basis. During 2014, Momentum’s critical illness claim statistics clearly indicated that the average 30 year old has a 25 per cent chance of contracting a critical illness before the age of 65.
This is why it is crucial to secure comprehensive critical illness cover early on in life and quite frankly we are all at risk of contracting a critical illness at any time during our lifetimes. No one can with certainty assume that it will never happen to them. In fact, during 2015 cancer accounted for 34 per cent of all critical illness claims followed by claims for cardiovascular and nervous system related diseases.
Equally important is the fact that if a person has already being diagnosed with a critical illness before he or she opted for critical illness cover, they will not qualify for critical illness cover for that existing condition which is even more reason to opt for this as early as possible.
Last but certainly not least, a number of people are living with the misconception that a medical aid will cover all costs relating to a critical illness. Medical schemes generally cover in-hospital costs adequately but long-term expenses linked to critical illnesses, including any “new generation drugs” often have to be funded by the patient out of their own pocket. For example, the cost associated with advanced cancer treatments such as Immunotherapy, which basically uses the body’s own immune system to fight cancers, makes use of newly developed drugs that could easily cost in the region of $130,000 for a 12-week course, and some patients need more than one course of treatment.
Income protection and disability cover
With regards to protecting one’s ability to earn an income, statistics indicate that just over one in four of today’s 20 year olds will become disabled before they retire. Research also shows that there are approximately 12.4 million working South Africans and about 52 000 of these are likely to become permanently disabled in the next year. According to Momentum’s 2015 claim statistics, 25 per cent of all claims linked to disability were paid to the age group ranging from ? 30 to 40 years. In that same age band, during 2015, 36 per cent of claims were paid towards income protection.
Especially with regards to income protection and young lives, younger people simply have more to lose. Not only are they more prone to accidents and injuries that could leave them disabled for life, but they also face a much greater loss in terms of future income. An injury at a young age would inhibit a person’s entire future and therefore affect their income earning potential for the rest of their lives. This should provide ample motivation for young clients to include income protection and disability cover in their financial portfolio.
Also, young or old, should one instantly lose a regular stream of income, basic things like school fees and monthly groceries etc. will become unaffordable. Not to even mention the larger expenses including bond payments, car payments etc. Even though a spouse or partner might also earn a monthly salary, not all expenses can be covered by a single salary. Without the protection of one’s income in this instance, loss sets in immediately and the blow-back could last for many years to come.
Life cover
Although, in many instances, having life cover in place is not a priority for many young people, there are enormous advantages to securing this early on in life. In most cases, young clients’ life insurance premiums will be a lot less than older clients who apply for life insurance and may already have existing health conditions. This could be deemed more of a risk and will influence premiums.
However, Momentum is the only insurer that applies personal risk rating, thus using individual criteria to rate the risk of an insured life. This approach is a much more impartial way to determine a client’s risk profile and premiums linked to this. Taking this one step further, Momentum Interactive applies an additional refinement which rewards clients for living a healthy lifestyle by calculating applicable discounts on life insurance premiums.
Illustrating the financial advantage of securing cover early on in life
This information is based on the following profile: Male, Non-smoker, Degreed, 5% compulsory premium, sums assured in the table.
Conclusion
With the understanding that each client has unique risk needs, critical illness, income, disability and life cover each has a different role to play in a client’s lifetime. Therefore, young or old, critical illness cover provides protection against the major financial loss of suffering a serious illness and offers more treatment choices. Income protection on the other hand secures an uninterrupted stream of income for a specific period of time. The cover can also provide a lump sum pay-out should a client become disabled and cannot continue to work. This could fund a number of unforeseen expenses linked to a disability for example adjusting one’s vehicle to accommodate a disability or structural changes to one’s house that will enable free movement.
Life cover also has an important role to play because it pays a benefit in the event of the insured life’s death that can help provide financial security to a client’s family if the worst were to happen.
Therefore, all of the mentioned benefits are designed to cover different needs linked to risk events in a client’s life. One benefit might feature more prominently than the other, depending on the need at the time.
With the one denominator across all these benefits being financial security to oneself and one’s family, it is never too early to secure comprehensive risk cover that will enable a client to make decisions based on preferences rather than affordability.
Get the latest issue of FAnews