Offshore risk protection that pays out in USD is gaining traction – what brokers need to know 

Traditionally, risk cover like life insurance has been held locally, in rand-denominated policies. However, according to the latest Discovery Life research, more South Africans are diversifying their life cover to include policies that pay out offshore, in US dollars – similar to how they manage their investments.  

South Africa is in the top 30% of the KOF Globalisation Index – which measures how globalised a country is economically, socially and politically – with developed countries predominantly making up the rest of this group. With more people living and studying overseas, or even working remotely but living locally, South Africans are increasingly experiencing more global and interconnected lives.  

In parallel, they’re also seeking to diversify their risk cover to meet their offshore needs, like protecting their children’s education abroad, or accessing specialised medical care not available at home. They’re doing this by taking out risk cover that pays out in a stable currency, like the US dollar, anywhere in the world.  

Diversified risk protection that hedges against currency volatility 

The latest research from Discovery Life, which digs into South Africans’ growing demand for offshore risk cover, shows that from January 2014 to January 2024, the US dollar strengthened by a cumulative 68% against the rand. This went against inflation differentials, which predicted the change to be about 25%.  

“This means a client who elected to have both a local (rand-denominated) and an offshore (dollar-denominated) plan of the same value in 2014, would effectively have 35% more cover under their dollar-denominated plan compared to their local plan today,” says Gareth Friedlander, Discovery Life Deputy CEO.  

“South Africans’ global connectivity takes many forms, from working abroad while maintaining connections to home, to locals returning home to enjoy South Africa’s relatively low cost of living compared to Europe and North America, and citizens who are based locally but maintain overseas interests and have offshore responsibilities,” says Friedlander. “This globalised way of living requires currency-matching and hedging solutions for anyone who wishes to maintain the purchasing power of their life insurance payout in the future.” 

Challenging offshore risk protection misconceptions 

Friedlander points out that some brokers still only consider risk protection plans in a single, local currency. He maintains this is largely due to a lack of awareness around the options for diversifying life insurance. “There’s also a misconception that offshore products are only for high-net-worth individuals,” he adds. “This is understandable as to invest offshore, people often need a large lump sum to meet the minimum investment. However, there is also a lack of awareness that offshore risk protection, like a plan that pays out in US dollars, is another important – and possibly most affordable – way of diversifying a client’s financial plan.” 

According to Discovery Life’s research paper, the average premium as of January 2024 across new local and offshore risk policies on the life insurer’s books is R1 750. That said, Discovery Life’s Dollar Life Plan only requires a minimum monthly premium spend of just $50 (R900). 

“This type of cover is one of the most accessible ways for people to enter the offshore financial world. Discovery Life has also found that three out of 10 Dollar Life Plans have a premium of $100 or less, which indicates a fairly large portion of these policies are taking advantage of this diversification opportunity without spending more than local policyholders.” 

What is Discovery Life’s Dollar Life Plan? 

Launched in 2014, the Dollar Life Plan is the only South African life insurance policy denominated in the most widely used global currency, the US dollar. The Dollar Life Plan is underpinned by the Life Fund, which pays out internationally, directly in USD, upon a policyholder’s death or an earlier life-changing event such as a disability or severe illness.  

The Life Fund also automatically includes the AccessCover and Terminal Illness benefits. Respectively, these living benefits allow a policyholder to either convert their life cover into cash on several qualifying life-changing events while they are still alive, or to accelerate the Life Fund payout.  

In addition, the Dollar Life Plan offers market-leading benefits, all payable offshore in USD:  

The Capital Disability Benefit 

The Capital Disability Benefit pays a lump sum in USD if a policyholder becomes disabled, and depending on the options selected, policyholders have access to the MedTech Booster Benefit. This unique benefit provides additional payouts for cutting-edge assistive medical devices, or to help the policyholder adjust to a new way of life after a complete or partial permanent disability. 

“More than 76% of medical devices in the South African market are imported, like some myoelectric arms (a high-tech prosthesis controlled by bio-electrical signals), so the cost of this technology is often prohibitively high,” says Friedlander. “The MedTech Booster payments, however, are made as an upfront payment, and provide payments every three years to assist with the costs of the ongoing maintenance of the technology.” 

The Severe Illness Benefit 

The Discovery Life’s Dollar Life Plan’s Severe Illness Benefit pays out a lump sum in USD for over 200 conditions. Policyholders can have cover until they are 65, or for their entire lifetime. This benefit offers a host of additional benefits, such as a Global Treatment Benefit, which covers policyholders for international healthcare procedures and gives them access to expert medical practitioners and facilities around the world, a Cancer Relapse Benefit, an Early Cancer Benefit, and the Cancer Exome Sequencing Benefit, which provides a payout to assist in funding the costs of sequencing of certain high-risk tumours. 

“We see a very real need for clients to match their highly specialised medical needs. Complex treatments for cancer can cost more than R1m a year. These costs are growing at a faster rate than South African inflation, as a lot of research and development occurs internationally,” notes Friedlander. 

The Dollar Global Education Protector  

The Dollar Global Education Protector covers the education costs for a policyholder’s children, from crèche through to tertiary education, in the event of the policyholder’s death, severe illness or disability. By managing health and wellness, policyholders can fund up to 100% of their children’s tertiary tuition fees, even if they don’t claim.  

“Our research shows that for the last five years, at least 12 000 South African students have been studying abroad every year, while education inflation is consistently around 2.5% higher than normal inflation, locally and abroad. The top three universities in the 2024 Times Higher Education World University Rankings – University of Oxford, Stanford University, and Massachusetts Institute of Technology (MIT)18 – cost multiples of what top local universities charge,” notes Friedlander. “It’s no surprise that Discovery Life continues to see a strong demand from our clients to hedge against education costs where there is the possibility of a child studying overseas.” 

Brokers need to adopt a global mindset 

“Comprehensive and relevant life insurance means that policyholders can weather the financial impact that life-changing events bring. A well-structured life insurance policy can assist in providing financial protection, so that finances are one less thing to worry about,” highlights Friedlander.  

“As more South Africans see value in a global way of life, it is important that their trusted financial advisers keep abreast of global financial planning and risk protection options,” advises Friedlander. “Impetus is definitely there. From just a handful of advisers using Discovery Life’s Dollar Life Plan as part of their risk-planning approach for their clients in 2014, the number has grown to 1 190 advisers countrywide who have used this option with their clients. 

“Affordable, accessible and diversified life insurance – that pays out in dollars – helps to future-proof whatever responsibilities, liabilities or aspirations policyholders may have, no matter where they are in the world.”