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.
