It’s not surprising that many young earners struggle to see the immediate value of a long-term policy, choosing to believe their income is better spent on today’s more pressing concerns. A large part of this points to the various misconceptions handicapping the industry.
“The insurance industry forms an invaluable function in people’s lives. There’s a social benefit to what we do. Without insurance, people aren’t able to take risks, and if the unthinkable happens, they’re left destitute. Our industry does amazing work, but we haven’t done enough to change some of the negative consumer perceptions,” says FMI CEO, Brad Toerien.
The assumption that because life insurance supports your loved ones upon your death, it’s only relevant for those with dependents, is one in particular that life insurer FMI (a division of Bidvest Life Ltd), is on a mission to change. In their recent #RealityCheck Consumer Survey, FMI revealed that up to 48% of South Africans perceive life insurance as death cover.1
“A key focus area for FMI is to make insurance relevant and accessible to a younger market. Starting first and foremost, with the importance of protecting your income today. There is real, tangible value to insuring your income that each of us can appreciate right now – but a shift in mindset needs to take place. Many of us don’t think twice about insuring our car or our cellphones, but very few of us consider protecting our ability to pay for these benefits in the first place. Remind your clients that those small luxuries and experiences they’ve planned for tomorrow, depend on their income today,” stresses Jessica Beattie, FMI Brand Manager & Strategist. “We have a responsibility as an industry to have these conversations with young earners upfront, to make sure they have the best cover in place from the get-go.”
Many young professionals – and let’s face it, many human beings – severely underestimate their risk of injury and illness. In reality though, a bright-eyed 20-something has an 86% chance of being off work for at least 2 weeks during their working career, because of an illness or injury. And after that first claim, frighteningly FMI’s claim stats show they are 3x more likely to claim again2. So, while sick leave can be the perfect safety-net on the odd occasion, we see that more often than not, it’s not there for people to rely on in the second or third instance, when they need it most.
The value of future income
When it comes to highlighting the need for life insurance, the most powerful message is this: young professionals have their entire career ahead of them and there is no better time to capitalise on that future wealth than right now. The reality is many of us South Africans underestimate the value of our future earnings. For example, a 25-year-old earning R25 000 will earn R37 million over their working career.3 Yet over 50% of the FMI survey respondents believed they’d earn no more than R10 million.
The Group scheme gap
It’s important that advisers assist clients to choose the right policies that are sustainable. Group staff benefits are a great start but consider this in light of South Africa’s frequent job churn. Should a young earner leave a company or position and fall ill during that time, qualifying for a personal policy in their next career move might prove that much harder.
It’s also important for individuals to understand what they’re covered for under their Group scheme. Do they know that Life and Disability lump sum cover will only pay-out if they’re permanently disabled or pass away? For those that include an income protection benefit, does the individual understand that this benefit usually only kicks in after they’ve been off work for a minimum of 3 months and it only pays an income for a few months? According to the same FMI survey, 62% of South Africans said they’d run out of money in 3 months if they couldn’t earn an income – which clearly demonstrates the gap in most Group schemes,4 so it’s important that advisers assist their customers in understanding the complexities and structure of their financial plans, in the simplest manner possible.
South Africans prefer an income over a lump sum
The good news is that 61% of South Africans would choose a regular monthly income pay-out over a lump sum, if given a choice.5 People inherently understand the value of an income benefit because it mimics the income stream that they would need to replace in case of not being able to work due to an illness or injury. What’s more is that policies with Lump Sum benefits only are 66% more likely to lapse in year 1 than policies that include income benefits.6 This reinforces the opportunity for new market growth and the shifting trend to put income first.
“As an industry, we need to adapt our approach to changing customer mindsets. In particular, we need to show young earners how much their lifestyle depends on their monthly income, and advocate for the importance of protecting that income from day one,” concludes Beattie.