I can’t get no sleep
Young and carefree is seldom the case in today’s complex financial world. Research from the US and the UK confirms that Millennials regard disability and retirement as two major concerns for the future.
It’s not just the 20 year olds and 30 year olds battling this anxiety; workers of all ages are weighed down by financial burdens and increased debt, according to the 2016 Employee Financial Wellness Survey by PwC in the US.
The home fires burn strong
In South Africa, the situation is not different. Retirement is a major concern for all individuals in this age group; followed by risk, of which death, disability and critical illness are a portion.
Various reasons add to this anxiety, including political uncertainty, a slowing economy, high unemployment, and the fact that working individuals support extended family members. This goes some way to explaining the country’s historically low household savings ratio, which currently sits at approximately -0.85%.
Gaining peace of mind
As important as savings are, there are other ways to get some financial peace of mind. This includes taking out risk cover.
As an industry, we already know that South Africans are underinsured by R24 trillion based on research done by the Association of Savings and Investments South Africa.
This figure can be broken down into death and disability, about R9.3 trillion in death cover and R14.7 trillion for disability cover. Clients must understand that if they have responsibilities and are underinsured, they may not have sufficient savings to carry them through.
Knowledge is power
Education has a key role to play in this discussion. For those employed within corporates and, more importantly, the self-employed.
Underinsured corporate workers need to make sure they have bridging cover, while business owners must know that they can lose their ability to earn an income if not adequately covered.
Corporate workers often take it for granted that their employers provide adequate risk benefits. But have they fully quantified what that risk benefit is, and if it would it be sufficient to cover expenses in the event that they become disabled?
The downward spiral
Between 2013 and 2014, South Africa saw a 6% decrease in risk cover being taken up, with a further reduction likely as the economy contracts. Undoubtedly, new entrants to the workplace are feeling the squeeze alongside older individuals with the added financial pressure of having children and aging parents.
When you consider that in 2015 98.1% of claims for death and disability were paid out in South Africa, amounting to about R15 billion in risk benefits, then there is certainly peace of mind to be had by clients when they cover themselves adequately, and provide full disclosures during the underwriting process to ensure a smooth pay-out if the need arises.
The impact on advisers
What does this all mean for advisers? We can and must educate clients, ensure they get adequate guidance, and provide enough choices about cover.
We are doing clients an injustice by not seeing them regularly. We should encourage them to review their portfolios once a year, bearing in mind that at some point they may no longer need R20 million in life cover if they have no debt or dependants.
Clients also don’t have to keep insurance or disability benefits for the rest of their lives. In the twilight years of a working career, savings could be sufficient if they need to fund that gap, and they could save the extra premium. But that is a consideration for the 50 year olds and 60 year olds, not the younger group.
The onus is on the adviser to tell the client about the inherent risks of not having sufficient cover. We need to innovate, change mindsets and teach our clients to insure their most important assets – their lives. And behaviour change may be easier with millennials.
