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Simple Products: Good choice, good advice

01 February 2008 Jannie Coffee, GREENLIGHT

With retail products like digital cameras or bread, you can afford to make the wrong choice. The camera may be too complex but it will still take pictures. You can still toast the bread and slap on some cheese if you bought an odd flavour. With life insurance and other risk products you simply cannot afford to make a choice, for yourself or your clients, that you don't understand.

Let me explain using an example: you advise on disability cover. You think that the policy will pay out when the client is no longer able to do their job because of disability. But what disability ? If the policy pays out based on a list of conditions and your client's condition isn't on the list, you have wasted their money.

In addition, they're now in serious financial trouble as they are not able to work. The example illustrates that it's a good idea to understand exactly when and why a policy pays out. Unless the product features are simple you won't be able to understand them properly and could advise the client to buy the wrong one.

Confusing premiums

The problem of complexity also extends to premiums. You may advise a client to take out a fancy new policy where premium increases depend on the number of times the client goes to gym, and you think this makes sense because the more one goes to gym, the healthier one will be, right ? And the healthier one is, the less one should have to pay in risk premiums. But what happens if your client doesn't go to gym often enough? Do you all understand the fine print, and the implications ? They might have to shop around again and go through all those medical tests if the premiums become too high. Worse still, they may have understood the gym requirement, but may be unable to go to gym because of medical issues. They are now faced with higher premiums, but are not able to get new cover elsewhere because of their health.

The complexity in the market means that your clients could end up paying much more than they wanted to and could also carry risks that you thought were passed on to the insurer. And where does that leave you, the adviser ?

Simple is the solution

Most problems in life can be broken down into fundamental parts. These are usually much simpler to solve. The insurance world is very similar in that there are fundamental events you want protection for. Your insurer should offer simple solutions that protect you and your clients against these events. FAIS requires that providers of advice identify the financial product or products that will be appropriate to the client's risk profile and financial needs, so being able to simply understand the products yourself is essential. You can then build up a customised solution for your client's particular needs.

Insurance products are often seen to be cuttingedge and innovative when they have new features or cover many things. The complexity involved often leaves you in a position where you don't know exactly what you're advising your clients to buy and how much it ends up costing them – and you.

As soon as you start to think about fundamental insurance needs, you will realise that a simple product range offers everything you need especially peace of mind.

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The South African authorities are hard at work to ensure the country is removed from the global Financial Action Task Force grey-list by February or June 2025. What do you think about their ongoing efforts?

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End-2025 exit is too optimistic.
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