BrightRock has launched its new ‘Love Change’ Facebook page where it is giving consumers the opportunity to help rewrite the script for its 'Fatherhood' radio advert. Through a special ‘you change our ad’ app, consumers will be able to enter their suggested wording for the new advert. The advert about a dad meeting his newborn son for the first time has been aired on Talk Radio 702 in recent weeks. The implicit message of the advert, given the slogan “love change”, is that outdated attitudes should also change, but some listeners do not interpret it in this way.“At BrightRock, we pride ourselves on our ability to meet your needs and to respond as those needs change. So we’re heeding 702 listeners’ feedback, and giving you the chance to change our advert,” says Suzanne Stevens, executive director: marketing at BrightRock.The winning script will be recorded and flighted on radio – and the script writer will get to attend the studio recording.“BrightRock’s needs-matched life insurance is the first ever that changes as your life changes. So, while most people fear change and the uncertainty it brings, BrightRock clients can love change, and the new choices and opportunities it brings. Especially at life’s inflection points – those milestone moments that change your life forever. For our radio advert, we chose the birth of a child as one of those inflection points. So the winning script will be the one that best reflects the fears, hopes and aspirations of a father for his newborn son.”The promotion kicked off on the Jenny Crwys-Williams show on Wednesday, 13 March on Talk Radio 702 and on Facebook. To find out more, click here.  

It’s important to initiate a savings plan as early as possible to ensure you have sufficient funds for your children’s education. And to make sure you’re not just saving towards their education but also providing cover in case something should happen to you: When making provision for your children’s education should something happen to you (illness, injury or death), make sure not only to   provide for the education costs (school or tuition fees) paid to an institution, but also to take into account the related costs including extramural activities, books, stationery, accommodation, cell phone allowance, groceries and all the other living and household expenses related to your child. It’s important to think about how long your child will need to be covered for. If you expect that your child will complete a three-year post  matric qualification before entering the working world, you probably only require cover to age 21, but if your child is likely to carry on and do a postgraduate degree, you may need cover for longer. Think about the kind of academic institution your child will attend during each phase of their education – pre-primary, primary, secondary and tertiary. If your child attends a government high school, there could be a significant increase in cost once he or she graduates from school and starts tertiary education, so you may need more cover to kick in after your child reaches the age of 18 years. However, if your children will attend private high schools, the cost difference between tertiary and secondary education may not be as substantial. How much is enough?“Using BrightRock’s needs-matched solution one can easily calculate the potential costs. If, for example, you’re spending about R5 000 a month per child – say towards private school fees, extramural activities, after-care and other related costs – and this amount inflates yearly at consumer inflation (assumed at 5%) plus 2%, by the time your child reaches the age of 24, the total cost equates to a lump-sum investment of about R1.8 million today,” says Suzanne Stevens, Executive Director of Marketing at BrightRock. http://www.livingandloving.co.za/article.aspx?id=35586&h=Saving%20for%20your%20child%E2%80%99s%20future

The best aggregation technology isn’t always all byte and processor. When it comes to creating insurance solutions that meet the consumer’s need, we believe there’s still no replacement for flesh, brain and heart. Here’s why. An aggregator is a person or a thing that aggregates related and frequently updated content from various sources and consolidates this content in one place for viewing. The past few years have seen the emergence of online aggregators to assist consumers in their purchasing decisions. This is particularly true of developed markets like the USA, where noted research firm Forrester as far back as 2009 reported that around 39% of all insurance purchases (short- and long-term) were transacted online. In the SA insurance industry, aggregation technology is not yet as firmly entrenched. But we are starting to see more insurance contracts being concluded through the internet, with direct insurers – particularly in the short-term space – increasingly using aggregation technology to supply clients with online quotes. The power of online aggregators lies in their accessibility and convenience. Clients receive their quotes in seconds and once they’ve completed the process, their details are sent to an insurer who will contact them to conclude the policy. They’re literally able to access quotes from a number of players at the click of their mouse. And given the increasing demand for accessibility and transparency in financial services, the appeal of this technology is clear. But can online aggregation ever fulfil the same role as an independent financial adviser, particularly in the complex life industry?   The first issue with online aggregated policies is that they’re stripped down to the bare essentials. So while clients may benefit from convenience and a low premium, the cover they end up buying may not necessarily suit their needs or be flexible enough to meet their future needs.   And clients’ fundamental lack of understanding of their financial needs is arguably the greatest objection that can be made to the online aggregation tools. A 2011 survey by Deloitte in the USA entitled “The Voice of the Life Insurance Consumer” found that the majority of consumers do not take the initiative to find cover; they still rely on someone – their employer, a product provider or a financial adviser – to approach them and offer them cover. Overwhelmingly, the study concluded that consumers don’t recognise the financial needs met by life insurance – and hence, they’re unlikely to seek coverage. So that old chestnut, that life insurance is sold not bought, appears to hold true still.   Independent Financial Advisors (IFAs) remain firmly in the lead in South Africa as the source of trusted advice, although the number of South Africans making use of independent advice is still worryingly low. A survey conducted by Visa among middle-class South Africans, the Visa Wealth Worries 2013 survey, released last week, found that 16% of respondents trust the Internet for financial advice, whereas 32% relied on financial advisers. Other sources of advice cited were a spouse or partner, family, friends and newspapers. The Financial Services Board’s (FSB’s) financial literacy survey (published in September 2012) reported that 62% of South Africans would trust a financial adviser to provide them with sound financial advice. The FSB study makes no specific mention of the internet as a source of financial advice. In BrightRock’s opinion, the independent financial adviser remains the best aggregator and the most sophisticated technology available to clients. Financial advisers are uniquely qualified and experienced to find the perfect fit for their clients’ risk cover needs. In their ability to relate to their clients, like no online aggregator can, IFAs are not only able to understand their clients’ concerns and their aspirations, but – in light of some of the findings we’ve highlighted here – are able to relate those concerns and aspirations back to clients’ underlying financial needs. And in turn, are then able to relate those financial needs back to a life insurance solution that can adequately cater for them. In essence, good old fashioned independent advice is no different from newer forms of aggregation; however, we’d argue the quality of the output is better. That’s why we believe in giving you the best support to help you bring as much heart as possible to creating a risk solution that meets each client’s unique needs. At BrightRock we’ve tried to bring together byte and heart. We provide you with an online quoting tool to assist you in creating a policy that suits your clients’ needs now and is able to grow and adapt as their needs change. This tool, Flint, is unique in its flexibility. On average, Flint does 24 million separate calculations per quote to generate the best, most tailored policy for your client – one that is truly needs-matched.

In March, BrightRock launched needs-matched life insurance products to South African independent financial advisers. The response from the market has been positive, exceeding the company’s expectations. While BrightRock covers the same insurance events as other policies, it maps this cover back to clients’ underlying financial needs through a unique needs-matched product technology. At the outset BrightRock customers are able to make a wide range of choices about how their cover should grow and change to stay relevant and in tune with their needs. Even after those choices have been made, it is easier for BrightRock clients to make on-going changes to their cover when their circumstances change. And this flexibility even extends to the point of claim: clients can opt for a lump sum pay out or a monthly payment when they claim – a world first.“Thanks to the successes that we’ve enjoyed thus far and our desire to maintain and develop positive media relationships, we saw the need to appoint a fully-fledged public relations agency with a local and international footprint that is able to assist us as we move forward,” says Suzanne Stevens, executive director: Marketing. “After conducting a robust appointment process BrightRock has secured the services of Corporate Communications Consultants (Corpcom).” Corpcom has over 25 years’ experience in managing communications programmes for local and international companies with a focus on both the insurance and financial services industries.   *Original title of article: BrightRock secures the services of Corporate Communications  

This weekend, during the ad screening before James Bond “Skyfall”, a nervous young man serenaded the love of his life... ...Tarryn, in front of the rapt cinema audience and romantically asked for her hand in marriage. The audience “oohed” and “aahed”, first in encouragement and then in shock… The young man’s best friend filmed the action in Sandton’s Ster-Kinekor theatre. Check the video here to see what happened next. Actually, BrightRock made sure cinema-goers at eight theatres around the country were both shaken and stirred during their James Bond “Skyfall” experience. The top secret action was thanks to a special in-cinema BrightRock activation that took place on Friday at Sandton City, Cavendish Square, Mimosa Mall and Gateway Shopping Centre and on Saturday at Greenstone Shopping Centre, Kolonnade, Brooklyn Mall and Tygervalley Shopping Centre. So the audience’s shock and embarrassment soon gave way to laughter when it became clear it was all part of BrightRock’s Love Change message. After all, life changes unexpectedly all the time – and so should your life insurance! And, the message on screen told the audience, get the first-ever life insurance that changes as your life changes. After the movie, all cinema goers received a BrightRock leaflet with information on our needs-matched life insurance and a fortune cookie with a positive change message inside. Love change! YouTube: www.youtube.com/brightrocktv Twitter: www.twitter.com/BrightRockZA   LinkedIn: www.linkedin.com/company/brightrock-life-insurance  

This weekend, during the ad screening before the latest James Bond film, Skyfall, a young man serenaded the love of his life... Tarryn, in front of a rapt cinema audience and asked for her hand in marriage. Much to the dismay of movie-goers and despite his endearing performance, Tarryn said no. As it turns out, BrightRock made sure cinema-goers at eight theatres around the country heard its message through this marriage proposal. The in-cinema BrightRock activation took place on Friday at Sandton City, Cavendish Square, Mimosa Mall and Gateway Shopping Centre and on Saturday at Greenstone Shopping Centre, Kolonnade, Brooklyn Mall and Tygervalley Shopping Centre. The audience’s shock and embarrassment soon gave way to laughter when it became clear it was all part of BrightRock’s Love Change message. “After all, life changes unexpectedly all the time and so should your life insurance,” says BrightRock. “The message on screen told the audience, get the first-ever life insurance that changes as your life changes.” After the movie, all cinema goers received a BrightRock leaflet with information on its needs-matched life insurance and a fortune cookie with a positive change message inside. The young man’s best friend filmed the action in Sandton’s Ster-Kinekor theatre. You can watch the video here.

We all know the 2008 global financial crisis was also a crisis in consumer confidence. It led not only to worldwide economic instability, but also shook our long-held trust in institutions. Reeling from the impact of the global economic meltdown, consumers have demanded protection against similar events in the future, leading to a slew of regulatory reforms around the world. This is particularly true of the financial services sector. In South Africa, insurance companies are not only grappling with the complex changes in global financial reporting and insurance contract requirements, but also preparing for the implementation of the Financial Services Board’s (FSB) Treating Customers Fairly regulations, which become enforceable in January 2014. Treating Customers Fairly (TCF) is a regulatory approach that aims to ensure transparency and fairness in financial services. Based on a similar initiative in the UK, TCF is in effect an overlay onto the existing regulatory framework within financial services and complements the extensive protections built into the National Credit and Consumer Protection Acts. In fact, draft legislation in the form of the Financial Services Laws General Amendment Bill will exempt the financial services industry from the Consumer Protection Act, as long as the sector's regulator, its providers and their products all meet the stringent requirements of the TCF regime. Ironically enough, the Consumer Protection Act 68 of 2008 is a formidable 94-page document, while TCF consists of six clear and simple principles spanning every aspect from product design to marketing practices and post-sale servicing. In fact, TCF is a practical, outcome-based approach that every business, whether in financial services or other sectors, can apply to check whether they're truly delivering to their clients in a way that's fair - and fully compliant with the spirit and intent of the CPA. That's not to say achieving those outcomes is easy. A pilot self-assessment survey conducted under the auspices of the FSB among financial services providers, published earlier this year, reveals that companies face a number of challenges to full TCF compliance. Chief among them, reported the FSB, is a lack of a formalised strategic focus on the issue at the highest decision-making levels of these organisations. Being a relatively new entrant to the sector, BrightRock is in the privileged position to be "born of the TCF era" and we've had the opportunity proactively to design our products, services and processes with both the Consumer Protection Act and TCF in mind. And we're strongly of the opinion that companies that prioritise the TCF principles and effectively harness them have the opportunity to create a real and powerful competitive advantage for themselves in the process. And perhaps more interesting still is the thought that the insurance sector - which is often typecast as the least consumer-friendly industry of all - could provide a case study for other sectors on how best to achieve the objectives of consumer protection legislation. Thanks to the highly practical, outcome-based approach that is TCF. Sean Hanlon is Executive Director at BrightRock *Original title of article: Can the insurance sector teach other businesses about fairness?    

Let your client choose between a lump-sum or recurring pay-out, or a combination. Income protection products seem to be hot news right now, with a few of the established players in the market launching and emphasising enhancements to their income replacement offerings. While the underlying financial needs that relate to income are recurring in nature and there are recurring income replacement products available on the market, lump-sum disability products remain the most popular. Popular wisdom suggests that, if a client had to choose between the two, they're better off with an income replacement policy. But what should clients and financial advisers be aware of when choosing an income replacement product? Below we share our shortlist of key points to consider. In fact, we created BrightRock's product to ensure that you can create an entirely needs-matched solution for each of your clients that takes into account all of their different needs across both their income and asset protection needs: 1. Needs duration Some recurring needs are lifelong needs while others may fall away in time. The need to cover basic household expenses and healthcare costs exists for life; however, the monthly costs associated with educating children will fall away. Traditionally, income replacement products provide cover only until retirement age. Some of the newer products in the market allow for limited post-retirement cover as well - but because of the limits that apply, the cover may be severely watered down in retirement. In BrightRock's view, a good income protection product should offer clients the ability to secure appropriate pay-outs post-retirement for lifelong recurring needs (like healthcare and household expenses). 2. How cover grows While the monthly expenses covered under the banner of income replacement policy are all linked to consumer inflation, the underlying costs may grow at different rates over time. Simply growing cover by inflation may lead to significant underinsurance for these needs. The ability to structure the cover for each of these needs by taking into account their duration and growth over time is a central concern. This not only ensures that your client's cover is relevant, but that it's also more cost-efficient, because it can be priced appropriately from the outset.     3. Claims criteria When it comes to claims, many products are based either on occupation definitions or medical definitions. However, occupation-based criteria are sometimes so narrow that a client with a severe medical condition may still be deemed able to work. On the other hand, the application of strict medical definitions won't necessarily make provision for the case where a client who has a mild medical condition may be significantly hindered in their ability to perform their occupation. It is important that clients enjoy the benefits of both worlds with the application of objective medical criteria and an occupation-based underpin.   4. Cover continuation Typically, while your client's insurance needs may change or move over time, this doesn't mean they disappear or that new needs won't arise. The ability to buy up more cover when they need it, is key. BrightRock offers policyholders the ability to redirect premiums from an area where they're no longer needed to an area of cover where they can be better applied. 5. Claims-stage flexibility We believe it is important to bear in mind that the nature of your client's financial need may differ at claim-stage depending on their financial circumstances and condition at the time of the claim. Other product structures in the market require clients to make the choice between capital disability and income protection at policy initiation, when they couldn't possibly know which choice would be more appropriate at claim-stage. BrightRock has the only product on the market that will let your client change between a lump-sum or recurring pay-out, or a combination of these at claim. Because at BrightRock we understand that your client is in the best position to know, with prognosis in mind, what their financial needs will be. This helps place them in the position to make the correct decision for them. All in all, BrightRock has developed needs-matched life insurance because we understand that no two clients are the same. This is a world first. Schalk Malan is executive director of product development at BrightRock

This footage was caught at this weekend’s SA release of Skyfall. During the ad screening before Skyfall, a young man declared his undying love to his one and only true love, Tarryn. Sadly, Tarryn turned him down in front of the big screen and the even bigger audience. Leaving her would-be husband feeling both shaken and stirred – and firmly reminded that movie-style grand gestures are sometimes better left to the likes of Daniel Craig. BrightRock – the market’s only provider of needs-matched life insurance products – deployed a team of actors, complete with accompanying marching band, to stage eight disruptions at Ster-Kinekor theatres at these centres: Sandton City, Greenstone, Brooklyn, Kolonnade, Cavendish, Tygervalley, Gateway and Mimosa. This stealthy, special ops style activation was aimed at driving home the message that while life is never certain, BrightRock’s products can uniquely adapt to the changes it may bring. But life does change when you least expect it, and that’s why BrightRock exists. To provide needs-matched life insurance that’s made just for you at the start and then keeps up with your needs, even when life doesn’t follow the script. Get the first-ever life insurance that changes as your needs change. Speak to your financial adviser or contact BrightRock directly on 0860 00 77 44, via their website, via email, or on Twitter. *Original title of article: Radvertising: Insurance company stages heart crushing proposal rejection in cinema    

When we choose a property for ourselves – as far as we’re able to – we don’t pick the standardised, blueprinted “little box”... ...that’s all the same as everyone else’s. We choose something that we love. That has potential. That suits all of our needs – both now and in the future. The third bedroom? That’s for when we want to add to our family. The large back garden? That’s so we’ve got space for a pool. Yet, when the bank that granted us the bond tells us that to have this investment we need life insurance, we are given very little choice. Indeed, we’re asked to pick a number – say R1 million of cover or R5 million of cover. But what are we buying and how will this cover change when my needs change? Schalk Malan, executive director Acturial at BrightRock says, “When you purchase your property you know you’ll be paying it off for the next 20 years or so, but, if you’re able to pay it off sooner, why should you continue to pay for cover on that risk? “We believe that you should be able to tailor your cover to meet your needs and keep it for just as long as you need it. “When your home loan is paid off and you no longer need the cover ,it can simply fall away. This means that you’re not paying from your first premium, for cover that’s been priced for life, like you would with other life insurance policies, when you only need it for a few years”. Fast forward a few years to when you are ready to increase your mortgage to afford those renovations. Can you also increase your cover? Says Malan. “ We believe it should be easy for clients to change their cover as and when their circumstances change. “Through our cover buy-up facility you can increase your cover by up to 25% for each new need without having to undergo any further medical tests (with the exception of HIV). For most of us, the instalment on our home loan is our most significant monthly expense. And, with the average cost of a home in South Africa today at around R900 000, South Africans are spending approximately R7000 every month repaying their mortgage debt. A life insurance product that’s right for you will help to make sure your family can count on the comforts of home sweet home – in good times, and in bad – and as you change and grow with your property.  

Life insurance exists to protect people against the financial fall-out of life’s changes across a range of financial needs and insurable events. At their core, these financial needs fall into two distinct categories: asset protection needs and income protection needs. And often, because of inflexible product structures and affordability concerns, clients and their advisers are forced to choose between protecting either the one set of needs or the other. In addition to securing their major capital assets and liabilities – typically through lump-sum capital disability and death cover – clients also need to provide for a range of recurring expenses linked directly to their monthly earnings in the event of illness, injury, or death. These regular monthly expenses may range from the monthly costs of medical aid contributions and school fees to transport costs, groceries and cellphone bills. Income protection products that provide regular monthly pay-outs to cover these recurring needs, although clients are also able to cover these through a lump-sum. Popular wisdom suggests that, if you have to choose between the two, an income replacement policy, while often pricier, is generally the wiser choice. This is because of the risk policyholders face of outliving a lump-sum. Another reason for their popularity is the tax efficiency of income products, given that the premiums are tax deductible. Yet it’s important to bear in mind that the pay-outs are taxed. And there are some other pitfalls that advisers and policyholders alike need to consider when selecting an income protection product. Some recurring needs are lifelong needs while others may fall away in time. The need to cover basic household expenses and healthcare costs exists for life; however, the monthly costs associated with raising and educating one’s children falls away once those children have achieved financial independence. Traditionally, income replacement products provide cover only until retirement age. Some of the newer products in the market allow for limited post-retirement cover as well – but because of the limits that apply, the cover may be severely watered down in retirement. In our view, a good income protection product should offer clients’ the ability to secure appropriate pay-outs post-retirement for lifelong recurring needs (like healthcare and household expenses). How cover grows over time is just as important. While the monthly expenses covered under the banner of an income replacement policy are all linked to consumer inflation, the underlying costs may grow at different rates over time. Household expenses increase in line with consumer inflation, but education and healthcare costs typically grow at a higher rate. Simply growing cover by inflation may lead to significant underinsurance for those two needs. To ensure efficiency and relevance of cover, the ability separately to structure the cover for each of these needs by taking into account their duration and growth over time is a central concern. This not only ensures cover is adequate, but that it’s also more cost-efficient because it can be priced appropriately from the outset. When it comes to claims, many products protecting one’s income in case of injury or illness are based either on occupation definitions or medical definitions. Both of these are associated with certain risks. Occupation-based criteria are sometimes so narrow that a person with a severe medical condition may still be deemed able to work. On the other hand, the application of strict medical definitions won’t necessarily make provision for the case where someone who has a fairly mild medical condition may be significantly hindered in their ability to perform their occupation. It is important that clients enjoy the benefits of both worlds with the application of objective medical criteria and an occupation-based underpin. Cover continuation is an important issue too. Typically, while clients’ insurance needs may change or move over time, this doesn’t mean they simply disappear; or that new needs won’t arise. The ability to buy up more cover when you need it, is key. BrightRock offers policyholders the ability to redirect premiums form an area where they’re no longer needed to an area of cover where they can be better applied. Above all, we think it’s important to bear in mind that the nature of a client’s financial need may differ at claim-stage depending on their financial circumstances and condition at the time of the claim. Yet current product structures require clients to make the choice between capital disability and income protection at policy initiation, when they have no way of knowing which choice may prove the most appropriate at claim-stage. The ability to change between a lump-sum or recurring pay-out, or a combination of these at claim – a feature currently offered by BrightRock – places clients in a position to tailor their pay-out to the need at the time when they’ve got all the information they need to make the correct decision. Importantly, BrightRock’s tax efficient product structure ensures lump-sum pay-outs aren’t taxed, even when taken as a regular monthly pay-out. We created BrightRock’s product with these issues in mind to ensure that financial advisers can create an entirely needs-matched solution for each of their clients that takes account of their different needs across both their income and asset protection needs.

Schalk Malan, BrightRock’s  Product and Actuarial Executive Director recently appeared on Mansfield’s Money Sense on CNBC Africa.   Schalk participated in a panel discussion, providing some interesting insights about the role of life cover in the context of retirement funding. The showed aired on CNBC Africa on Friday 2 November and can be accessed in two parts:   Part 1: http://www.abndigital.com/page/multimedia/video/mansfield/1453814-The-truth-about-Life-Insurance-Part-1   Part 2: http://www.abndigital.com/page/multimedia/video/mansfield/1453774-The-truth-about-Life-Insurance-Part-2  

Disability assurance is one of the most problematic areas of life assurance, accounting for most of the complaints submitted to the life assurance ombudsman each year.  And many people regard disability assurance as simply an add-on to assurance to cover an early death. In this last part of our series on risk life assurance, we look at disability assurance, its variations and why it is not simply an add-on life assurance option. The purpose of life assurance that pays out on death is to ensure that your dependants will be able to maintain their standard of living when you are no longer there to provide for them. Assurance that covers you in the event of a disabling disease or injury ensures that both you and your dependants will remain financially secure. In other words, it is for your dependants plus one. No one is immune to accidental injury or serious illness. If you are unable to work for an extended period, you will have financial problems. Disability is not a condition that affects only the elderly; it is the inability to work at any age because of a health or physical problem.  Unless you have dependants, you may not need life assurance against dying. But every working person needs disability assurance, from the day he or she starts to work. After all, you could be disabled on your first day on the job, and, whether or not you have dependants, you will need an income for the rest of your life.  There is a problem with assurance against conditions that prevent you from working: many people simply do not want to work and will invent all sorts of reasons so they can rely on disability assurance instead. Disability assurance is plagued by fraudulent claims, requiring life assurers to employ medical specialists to ensure that the claimed disability is valid and that it complies with the definition of disability or impairment in your policy.  In an effort to reduce fraud, life assurance companies traditionally tried to limit disability assurance to 75 percent of your income so that the incentive to work would outweigh the desire not to work. Disability assurance comes in different forms and under different names, including income protection assurance, sickness assurance and impairment assurance.  It is one of the most complex types of assurance because of misunderstandings over the benefits covered, policy definitions and limitations. The choices, limitations and exclusions related to disability and income protection assurance create a legal and technical minefield.  Many disability policies do not come with a commitment to pay you out for the rest of your life, and the amounts that you can expect to be paid may vary dramatically.    It is for these reasons that there are so many complaints to the Ombudsman for Long-term Insurance. Aggrieved policyholders believe they are entitled to a benefit, whereas the life assurance company believes they are still fit enough to work another day, month and year. Schalk Malan, executive director: product at life assurer BrightRock, says the important issues you need to take into account when buying assurance to cover you and your dependants if you are unable to earn a living are: * Whether to buy job-based disability assurance and/or medical condition-based impairment assurance; * Will you be paid out if you have a temporary and/or a permanent disability?   * Will you receive a lump sum payout or regular monthly benefits?  * Will there be a waiting period before you are paid out?  * Will you have to participate in a rehabilitation programme aimed at getting you back to work? Mind the gap Very few South Africans have sufficient assurance to ensure that they and their dependants will be able to maintain their standard of living if they are incapacitated by a serious illness or accident. Yet every day at least 144 employed people are left disabled as a result of serious illness or accidental injury.  Independent research undertaken in 2010 by True South Actuaries & Consultants on behalf of the Association for Savings & Investment SA showed that most South Africans will face a substantial reduction in their standard of living if they were unexpectedly unable to earn a living.  The research found that the only income group that does not have a disability gap are those earning less than R3 000 a month because they are covered by state grants for disability.  The average disability under-assurance gap for those earning between R3 000 and R5 800 a month is 58 percent; for those earning between R5 800 and R8 300 the gap is 70 percent; for between R8 300 and R16 700 it is 72 percent; and for over R16 700 it is 60 percent.     Your have a choice of two types of cover There are two main types of disability assurance:  * Traditional disability assurance, which is based on whether or not you are physically able to work; and  * Functional impairment assurance, which pays a lump-sum benefit for a predefined event such as an illness or an accident that limits your ability to carry out physical functions.  Traditional disability assurance is paid based on your ability to work or not. Impairment assurance is based only on functional impairment.  Many financial advisers suggest you have disability cover based on your occupation, as well as a level of functional impairment cover.    Disability assurance Much of the contention over traditional occupational disability assurance (or job-defined assurance) concerns what is meant by “unable to work”. The definitions differ from policy to policy.  Occupational disability assurance is divided into three options:  * Own occupation. You are paid out if you can no longer perform the job you are currently doing. This option is normally restricted to professionals.  * Own or similar or reasonable occupation. You qualify if you can no longer perform your current job or a similar job that you could reasonably be expected to do, given your ability to perform the required tasks.    With this option, you may have to take on a job that pays less or one that has few promotion opportunities.  The life assurer must be reasonable in deciding whether you must perform a similar job, taking account of your experience, training, employment and personal history.  * Any occupation. You are paid out only if you can do no job at all. If you have this type of cover and are disabled but are still capable of working, you will be forced to take up any job, even a menial one that pays relatively little. However, as with “own or similar” cover, the principle of what is reasonable must apply.  You pay higher premiums for “own occupation” cover than for “similar occupation” cover, and higher premiums for “similar occupation” cover than “any occupation” cover.  Functional impairment insurance The criteria for the payment of benefits are based on the level of illness or impairment, defined in medical terms. Whether or not you can work is not a deciding factor.  Functional impairment benefits are tiered, taking into account the importance of the part of your body you can no longer use in relation to the rest of your body.  To measure functional impairment, account is taken of your ability to perform daily activities.  A functional impairment policy will pay you a percentage of the amount for which you are insured for a particular condition, depending on its severity. So if you lost an arm inan accident, you would be paid less than if you lost both arms and both legs.  Schalk Malan, executive director: product at life assurer BrightRock, says it is not a matter of choosing between job-defined disability and impairment assurance. You need a combination of both. He says not all impairments will result in an inability to work with a consequent loss of income.  You may be disappointed at the claims stage if you hope an impairment product will meet a potential lost income need.  Impairment products are list-based products, meaning that if a particular impairment suffered is not on the list of impairments in the contract, then you will not be paid.  Another issue to consider is the “matching principle”. Stand-alone impairment products only pay once-off lump sums whereas “income” disability products may pay regular streams of cash or lump sums.  And these lump sums may not be well matched with your need to compensate for a loss of income received regularly over a long period.  You need to match your disability assurance needs to the number of years you will support yourself (and dependants) without a job and your future income needs. It pays to have a policy with flexible benefits If you are permanently disabled, you will probably face a choice in how you want to be paid a benefit.   Schalk Malan, executive director: product at life assurer BrightRock, says there are two main ways disability benefits are paid. These are:  * Income. You are paid out a monthly income. If your disability or income protection scheme is attached to a retirement fund (a group life and disability benefit), the amount will be paid until you become entitled to receive a pension.  * Capital (lump sum). You are paid a lump sum, which you must invest to provide an income.  Malan says both traditional disability and impairment lump-sum and income benefits may be affected by a number of factors. These include:  * Delay before initial payment. In most cases, there is a delay, ranging from a week to a few months, before you are paid the benefit. If you are employed, you need to investigate your paid sick leave entitlement, which may cover the waiting period.  You may need to consider buying a policy that will pay for severe illness on diagnosis without waiting periods that could exceed the remaining days of your life. * Temporary payment. Payments may be temporary, and the assurance company may require you to undergo rehabilitation to get you back to work.  * Scaled payment. Most policies have various permutations of payment. For example, you are paid 100 percent of your income for the first two or three years, and then 75 percent of your income for all subsequent years.  * Inflation-related payment. Your payments normally increase at a pre-selected rate.  Malan says there is an ongoing debate on whether it is best to select a capital lump sum payout or recurring payout on a permanent disability product. He emphasises that it is not an either-or debate. There is also a choice offered by some life assurance companies where you can take payment partly as a lump and partly as ongoing income.  Malan says in deciding what options to take you need to ask yourself what the intent is of your disability cover. For example: * Will the benefit be used to settle a debt if you are disabled? Malan says you don’t want to worry about debt if you suffer a permanent disability, especially if your ability to earn an income is affected. * Will the benefit be required for lifestyle adaptations such as having your home or motor vehicle altered if you have lost the use of your legs? * Will the benefit be used to protect your future earnings or expenses following your disability? Malan says in South Africa most consumers are under-insured. If you are one of the millions of South Africans who cannot afford to insure your full earnings in the event of a permanent disability, a good starting point would be first to look to protect your future expenses (after settling your debts), such as: * Healthcare expenses (medical scheme contributions and recurring expenses not covered by the scheme); * Children’s expenses (education costs, as well as their living costs); and * Other household expenses.  Malan says these recurring expenses can be plotted on a graph illustrating your future needs (see graph).   In calculating your future expenses you also need to take account of inflation. This means you would need to increase the required amount each year by inflation. This is not a single figure. Your medical expenses would generally grow by more than the average inflation rate each year. The expenses of, for example, your children might require cover only until they are finished with their studies; other expenses might require cover until your death or retirement. Malan says the decision on whether to select a lump sum or  recurring income payment on disability is difficult, with advantages and disadvantages for both. Lump sum advantages * A lump sum allows you to invest for an income, settle debt, pay additional medical expenses and even for alterations to your home if physically disabled. * You can receive a higher income flow in the event of a short life expectancy prognosis because of a terminal disease. This is particularly relevant if you are under-insured in the event of your death. Lump sum disadvantages * The lump sum could be badly invested and managed or spent too quickly on things like a new car. * A lump sum invested to give you income may not be sufficient if you have a longer life expectancy prognosis, particularly if your injury is, say, the loss of a hand, impacting on your ability to work in your current field of expertise or even another field. * It is typically more difficult to match an income from a capital amount than from a recurring benefit. Recurring benefit advantages * Income provision will provide great peace of mind because it removes the risk of your capital running out due to poor investment returns or longevity. * The premium for recurring income cover is normally cheaper than lump-sum cover because payment is delayed. Recurring benefit disadvantage * Could provide you with poor value in the event of early death following the disability. Malan says you need to consider disability assurance that offers you the best of both capital and recurring benefits for your income needs.  This should include being able to select your disability cover to pay out as a lump sum when you take out the policy but being able to change your mind at the claim stage to convert to a recurring benefit.

You need risk life assurance for a number of reasons, but, in effect, risk assurance does one thing: it provides cover for loss of income. You are buying cover against the risk of being unable to earn a living, either temporarily or permanently, because of illness, injury or death. However, your reasons for taking out risk life assurance will vary over the course of your life. Marriage, having children, inheriting a substantial amount of money or building up a small fortune are examples of the changes that will affect the amount and, importantly, the type of life assurance that you will require at different stages of your life. Traditionally, life assurance has been sold in separate bundles, both in terms of what the policy covers and the periods covered. For example, when you are younger, you will have one policy to cover debt on your home, another policy to ensure either that you will have sufficient money if you become disabled and cannot earn a living or that your dependants will have enough money if you die prematurely, another to pay for your children's education and another for dread disease. The cover is for '"whole of life“ that is, you are covered until the day you die. Often, the amount of cover will be increased each year to take account of inflation. Traditional life assurance does not take account of your actual needs - you may need less or more cover at any stage of your life, depending on your commitments and how wealthy or poor you are. And if your circumstances do change, such as having children later in life, you may then find that you are unable to buy additional life assurance because your health has deteriorated. On the other hand, you may find that a change in circumstances has resulted in your being over-assured, which means you are paying out money needlessly. Schalk Malan, executive director: product at life assurance company BrightRock, says the effect of changing circumstances on the amount of life assurance you need has been exacerbated in recent years by the disappearance of the "job for life". The "job for life" meant it was highly unlikely that you would be retrenched and unemployed. Importantly, it also meant you belonged to a defined benefit (DB) retirement scheme that paid you a guaranteed pension based on your final pay cheque at retirement. And you were also covered against disability, with your payout based on a multiple of your pay cheque. All that has changed. Anyone can face retrenchment and unemployment, and in the private sector DB retirement funds have largely been replaced by defined contribution (DC) funds.     From an assurance point of view, DC funds mean you need: More life assurance when you are younger, with the cover normally a multiple of your annual income plus what you have saved in your retirement fund; and     Less life assurance when you are older and have accumulated retirement savings. By that stage, youll probably have fewer dependants and a lot more money at your disposal in your retirement savings Malan says the change from DB to DC funds, where members take responsibility for their fund’s underlying investments, has changed the way investments are sold. In the initial years of DC funds, investments were packaged mainly as balanced funds, with a set amount being allocated to the different asset classes. But over the past 10 to 15 years, there has been a dramatic switch to lifestage investing, where the asset mix in the investment portfolios changes to take account of the increasing inability of people approaching retirement and in retirement to sustain shocks to their savings. Malan says the life industry has trailed way behind these changes, continuing to sell life assurance in fairly rigid packages. What is required, he says, is needs-based assurance (the life assurance version of lifestage investing), which allows you, with a single package, continually to adjust your life assurance cover without having to buy a new, or cancel an existing, policy whenever your personal circumstances change. Equally important is the fact that you will not face being unable to buy affordable life assurance when you actually need it. Ideally, Malan says, you need one policy with many different sub-policies. For example, when you are young and have children, a sub-policy will provide for their education should you die prematurely or become disabled and are unable to work. Then, once your children have left home, the education sub-policy could be closed down and another one that will provide cover for other expenses, such as estate duty and capital gains tax on death, could be increased, in line with your increased wealth. In other words, your risk life assurance will change as your needs change over time. Malan says that structuring your life assurance around actual needs makes your assurance more affordable, because you will pay only for the cover you require. Traditional products are structured around the events that will trigger a payout namely, the three D's of death, disability and dread disease rather than around the financial consequences you face as a result of having to claim. With traditional products, there is no visible link to your actual needs and how your needs will change over time. This creates inefficiency, which has an impact on the long-term relevance and affordability of your cover, he says. Traditional risk life assurance products are priced in advance over the lifetime of the policy. In many cases, the result is that you pay now for cover that you will never need. This, coupled with affordability constraints, often results in your compromising on the amount of cover you buy, Malan says. By contrast, the focus should be on making sure your assurance is relevant and appropriate, both for the events it covers and your underlying financial needs, he says. WHY IT PAYS TO BUY ASSURANCE FOR SPECIFIC NEEDS AS THEY ARISE Your risk life assurance can be grouped efficiently into six distinct financial needs: debt, health care, education, household expenses, estate duty and additional illness- and injury-related needs, Schalk Malan, executive director: product at life assurance company BrightRock, says. These groupings are based on how the different needs tend to behave over time. Once your specific needs among the six financial needs have been determined, you can specify the cover you require for each one. You can make choices about the term (number of years), growth in cover (to keep pace with inflation) and payout structure of your cover, for assured events and financial needs. For example, for education cover, you can choose to: Increase your cover at a faster rate than the consumer price index, while your cover for your other needs grows in line with inflation;     End the cover for each child between the ages of 18 and 24, depending on whether you expect to finance their tertiary education, and if you do, when you expect each child will graduate; and;     Have the policy structured so that it will pay out a lump sum or a monthly amount to meet ongoing education costs. Your policy should also be designed so that it will pay claims more than once. For example, you may need the policy to pay out when you contract a dread disease and then again if you become permanently disabled or on death.   Malan says there are five important benefits to matching your risk life assurance more closely to your needs.   They are: 1. You will know what you are getting. Your cover will match your existing needs.You will not buy cover now for a need that may or may not arise in future. 2. Your cover will remain relevant. Life assurance must be adaptable so that it can meet three requirements: * The ability to increase your cover to take account of a new specific need (for example, the birth of a child) without necessarily having to go through the whole underwriting process (a risk assessment, including a health check-up) again. This will be to your advantage if your health has deteriorated in the interim.   * The option to convert cover that was taken out for a financial need that has now fallen away (for example, your children’s education) into more cover for another, still relevant need (for example, to pay estate duty); and * The ability to end the cover once a need has fallen away. Malan says your life assurance should exactly match your needs at every stage of your life, so that your cover will remain as relevant as it was at the inception of the policy.     3. You will pay only for what you need. Your cover will be more cost-efficient, because the product is structured to bridge shortfalls and remove waste, making it possible to apply your premium more effectively. In this way, funds are freed up that can be deployed elsewhere within your risk portfolio. In addition, your premiums will be sustainable, because future premiums will be appropriate to your needs. However, you should also structure your policy so that it is priced properly. Malan says many people choose to “buy now, pay later” so they can afford life assurance. But the result is that you may have to pay a substantially higher premium as you grow older. Your assurance cover must be cost-efficient from day one to ensure you will be still be able to afford the cover when you are older. 4. You will have a better understanding of what your policy covers and how it does this. If, because of affordability constraints or other reasons, you find that you are under-assured, you will have a better understanding of these shortfalls and their potential impact on your financial plan. 5. Reviewing your cover. You can expect and request your financial adviser regularly to review your financial risk and your policy to ensure that your cover stays on track to meet your changing needs. Most life assurance policies state what you are covered for, but a direct link is not made between the policy benefits and your financial needs and the needs of your dependants. Malan points out that the code of conduct issued in terms of the Financial Advisory and Intermediary Services Act requires that your financial adviser: establishes your needs; gives you advice that is appropriate to your needs; and sells you products that are appropriate to your needs. In effect you are, by law, entitled to be sold needs-based risk life assurance. HEALTH WARNING Dont be a statistic act today to ensure that you have the risk life assurance you need. * Some 160 000 income-earners died in 2011; * Some 52 000 income-earners incurred a temporary or permanent disability in 2011; * Some 212 000 families suffered from financial distress, which affected their finances; and * A typical South African family will lose 50 percent or more of its household income after a tragedy because the breadwinners do not have sufficient life assurance. Source: Association for Savings & Investment SA NEEDS-BASED LIFESTAGE ASSURANCE  The graph (see link at the end of the article) shows how your risk life assurance will change in terms of five of the six main financial needs, each with different characteristics.  The six main needs are: * Household expenses. This need is based on calculating the type of lifestyle that you and/or your family will want to maintain if you are no longer able to earn a living due to disability or death. The amount of cover will vary based on the number of your dependants and for how long they will be dependent on you.   * Debt. Your debts that require assurance can range from short term to longer term. Usually, however, this cover will last for about 20 years but is likely to decrease over that period. * Education. Cover to meet this need will be required for a limited term, which will depend on the number of children, their ages and aspirations. * Health care. This need will grow over time, because the older you get, the more likely it is that you will need quality health care. The challenge is that, historically, medical inflation has been higher than headline inflation. The main expense that you need to cover is your contributions to your medical scheme. * Additional illness- or injury related-expenses. You will require assurance to meet unforeseen and unpredictable costs arising from an injury or an illness that are not covered by your medical scheme. This cover will be for your entire life and should grow in line with medical inflation. * Estate duty. The extent of cover for death taxes will grow as you get older and richer. This cover is required to pay the estate duty and capital gains tax that will be levied on your assets, over and above the permitted exemptions. Cover for estate duty is particularly necessary if you hold illiquid assets that may be difficult to sell at their true value if market conditions are adverse when you die. Needs-based lifestage assurance graph<<<<<

There is a wonderful Afrikaans saying that goes: Goedkoop is duur koop!  Roughly translated it means that bargain hunters end up paying dearly for their thrift.  The saying holds true for many purchasing decisions, including life insurance. Life insurer Brightrock retained True South Actuaries and Consultants to investigate the consumer implications of various life insurance premium patterns on local consumers. The 50-page expose is titled: Premium patterns: Caveat emptor (“Buyer Beware!”). Their study confirms that local life insurers offer unparalleled choice when it comes to structuring life and disability premiums. In the executive summary of the report, they observe: “The increasing commoditisation of life insurance cover has been one of the drivers [of the] divergent premium patterns generally offered by South African life insurers.” The commoditisation of insurance is the reason the research team was able to obtain 126 quotes, with different premium patterns, from four of the country’s major providers of risk cover. The quotes provided for life cover (whole of life), lump sum disability cover (up to age 65) and income continuation cover (up to age 65) for a number of hypothetical insured lives (split equally between male and female lives and with entry ages respectively at 25, 30, 35, 40, 50 and 60). A tough choice for an unassisted consumer “While increased choice is generally beneficial for the consumer, there is a risk that consumers might be tempted to simply select the cheapest initial premium for their desired cover level, without having proper regard for the future premium increases that are required under that policy,” observes True South. The big unknown is whether consumers who accept a life insurance quote with the lowest initial monthly premium are aware of the likely premium increases! Monthly premiums on these policies can rapidly escalate, become unaffordable, and lead to a forced lapse! The report highlights the value of proper financial advice at policy inception. A financial advisor can ensure that the consumer makes a fully informed decision that strikes a balance between current and future affordability of the policy. The value of advice is further supported by the study finding that policyholders could spend 60% more than necessary over the lifetime of a policy by choosing a more aggressive (cheaper initial premium) funding option. What starts out as a small premium saving on a more aggressive premium pattern often grows to a significant percentage of the policyholder’s income. By contrast, the share of wallet of a higher initial premium, with less aggressive future increases, in certain instances even reduces over time. Calculating the lifetime cost of cover The survey assessed the various providers and premium patterns against two important concepts, namely lifetime cost of cover and share of wallet over time. The former considers the total cost of cover over the lifetime of the insured and quantifies the value that builds up over time, while the latter expresses the change in spend over time as a percentage of the insured’s income. True South provided examples to illustrate each concept. A 25-year old female who selects a cheap initial premium policy could initially save R125 per month. It emerges that her lifetime cost of cover on this option exceeds that on the most expensive initial premium option by R139 254 – 50% more than what it would have cost! The monthly premium on the cheaper option became more expensive than the more expensive premium options from year eight onwards. At age 25 at entry, the additional percentage a male could spend over the lifetime of his policy by initially choosing the cheaper, age-rated option could range between 6% and 47% across providers. To illustrate the impact on share of wallet the group considered a 40-year old male selecting the lowest initial premium, with the most aggressive annual increases. He will initially spend 4% of his income on the premium, increasing to 13% over 40 years! Had he chosen the higher initial premium, with less aggressive annual increases, his initial spend would have been 5% and would still be at that level after 40 years. Approach “cheap” solutions with caution Paul Zondagh, who led the research team at True South, said: “The findings reveal that consumers need to carefully consider the implications of the choices they make when deciding how their long-term life insurance needs will be funded. “In most instances, for consumers who select cheaper initial premium patterns, policies with initial small savings become significantly more expensive when viewed over the lifetime of the insured. Consumers who choose higher initial premiums experience lower increases in the portion of their wallet eventually consumed by their premiums.” “The comprehensive study confirms the value of proper advice at the outset, to ensure your chosen premium pattern is affordable and sustainable in the long-term.”

Once upon a time, life assurance cover against life’s untimely risks was quite simple. You selected an amount of cover, probably increasing with inflation, and you paid a guaranteed premium for about 20 years, if not for life. The main reason you chose the policy of one company over another was effectively a result of which assurance sales person knocked on your door first. But in recent years, risk life assurance has got a lot more competitive and, because risk life assurance is often a grudge buy, life assurance companies have to provide prospective policyholders with a number of different premium patterns from which to choose. Paul Zondagh of True South Actuaries and Consultants says most life assurance companies offer premium structures that vary between having cheap initial premiums but which then have sharp increases into the future and having higher initial premiums with lower increases in the future. It means you now must not only make a choice between different providers, you also need to select a pattern of premium increases that will best match your needs and circumstances, current and future. He says that generally, while your assured amount will increase annually in line with inflation, for example, the level of your premium increases can vary considerably. “As a general rule, the lower the initial premium available from a provider, the higher the annual increases will be in the future.” This puts the onus on you to choose carefully. Zondagh says that while increased choice is generally beneficial for you, there is a risk that you may be tempted to select the cheapest initial premium for your desired risk assurance cover level, without having proper regard for the future premium increases required under a particular policy. “The wrong choice might be very costly if you simply pick the lowest initial premium,” he says. The True South research shows that, depending on your age, your premiums can escalate very rapidly to levels of unaffordability. For example, in an extreme example from Life Company B, for a 25-year-old woman the additional cost of the cheapest initial premium as opposed to a higher initial premium will see the policyholder paying an additional 74 percent in today’s rand values over the lifetime of the policy. Zondagh says that in most instances a small initial premium saving becomes significantly more expensive when viewed over the lifetime of a policy. The extent varies by provider. For example, with Company B, which has very aggressive premium increase patterns, the extra cost of premiums varies between 11 and 74 percent, compared with Company D, with less aggressive premium increase patterns, where the premium increase cost varies between six and 36 percent, depending on the age of the policyholder. Zondagh says there is a general tendency for the lifetime costs of the various premium patterns to converge at higher entry ages. He says the research shows that unless you have a relatively short time horizon – for example, if the cover is required only for a specific purpose for a specific number of years – the initial saving by picking a lower starting premium, with more aggressive future increases, may be an unsound financial decision. How the research was conducted In undertaking its research on the consequences of low initial life assurance premiums, True South Actuaries and Consultants obtained 126 quotes, using different premium patterns, from four of the major providers of risk assurance cover under the Long-Term Insurance Act. The quotes provided for cover on the whole of life (until the policyholder dies), lump-sum disability cover (up to age 65) and income continuation cover (up to age 65) for a number of hypothetical insured lives, split between male and female, with entry ages of 25, 30, 35, 40, 50 and 60. They focused primarily on how the different premium pattern options available from a provider compare with each other (for each hypothetical assured life). Quotes were requested from the four life assurance companies, categorised as Companies A, B, C and D, with each company’s premiums quoted in the research report. The information was used to provide comparable information: * Of the premium progression (increase) of each company’s structure choices over the first 20 years of the policy for entry ages 25, 30, 35 and 40. * To show the future crossover points between low and high initial premium options where the low initial premium option becomes more expensive than the high initial premium option in today’s rand values. * To show the percentage of your income that will be absorbed by future premium increases. True South used a range of assumptions applied across all quotes in analysing the figures, taking account of things such as inflation, particularly income inflation. You need a qualified adviser to guide you The variations in premium options and their complexity are significant reasons why you should get sound financial advice before taking out a risk life assurance policy. The results of the True South research into premium structures offered by life assurance companies emphasise the value of proper financial advice to get the correct amount of life assurance at the right price. The complexity of risk life assurance also raises warning signals if you are buying assurance from a company that sells directly to the public. These companies tend to have the cheapest initial premiums and sometimes have unacceptable exclusions – conditions that will limit the payment of benefits when they are needed. Getting sound advice will ensure that you make a fully informed decision that also achieves a balance between current and future affordability of premiums. When buying risk life assurance, your adviser should: * Assess your full financial situation by doing a financial needs analysis. This will tell you what financial shortfalls your dependants would have if you were to die or no longer able to earn a living and how to prioritise your various needs. (In the third part of this series, Personal Finance will explain the risks you and your dependants face and what types of assurance you need to cover the different risks.) * Having assessed how much life assurance you need, and what for, your adviser should then help you to calculate whether you can afford the premiums for the necessary cover, taking account of all your financial needs. For example, by paying off faster a debt such as your home loan, you will be building an asset, meaning you will require less life assurance. In a way, by doing this you will be assuring yourself. * Assess various quotations from a single life assurance company if the adviser is an agent of a particular assurance company, or from a number of companies if the adviser is independent. The quotes and assessments should include: - The starting premiums of the various options and their estimated escalation over time; - The total amount in present rand values that you will spend on each option over the lifetime of the policy; and - The impact on your earnings. If your income is increasing at an average of one to two percent above inflation every year while your assurance premiums are increasing at a faster rate, you could eventually be unable to afford the premium. However, further down the line you may not need the cover or as much cover – but you may need more. * Assess the structure of the product. You need to know things such as: - The flexibility of the product. For example, can you alter the assured amounts and premiums, either up or down, as your assurance needs change? And if so, what conditions and costs apply? You must also know whether you will need to have a health check-up if you increase the total cover and what effect this could have on your premiums and your assurability. - Exclusions. You need to know and understand under what conditions a risk policy will pay out. There may be an exclusion, meaning you will not be covered if you have certain health conditions or even for certain hobbies if they are high risk. - Conditions. You may need to inform the life company of a change of job and/or type of job or even change of employer, failing which no benefit will be paid because of a change in your risk profile. You will also probably have to inform the assurance company if you start smoking, as this will impact on your policy, as will stopping smoking. - Premium guarantees. Some policies have a guarantee that the premium will remain level for a certain period and only after that period will |it escalate. However, often you may be told that a premium is “level” whereas it will still increase at the inflation rate, or more likely at a rate above inflation if the assured benefit is keeping in line with inflation. The reason the premium goes up quicker than the inflation-linked benefit is that you are getting older and becoming a greater risk. Health warnings 1. No two people have the same assurance needs, and each needs to be properly assessed. 2. Never attempt, by sins of commission or omission, to mislead a life assurance company so that you can get a lower premium. This could include keeping silent on a risky hobby or a slight heart attack you had 10 years ago. A life assurance company is entitled to assess your risk to it and to set your premiums and any exclusions based on that assessment. If the company finds out something about you and you have misled it, it is entitled to repudiate any claim, meaning your dependants could be left destitute.

One of the main factors that will and should influence you when shopping for risk life assurance  that will pay a benefit if you die or are unable to earn a living as a consequence of severe illness or injury is the cost of the assurance. New research undertaken by True South Actuaries & Consultants shows that this does not mean you should simply look for the cheapest initial assurance premium on offer. It also means that you need to consider how your life assurance is structured to meet your ongoing and changing needs. True South is the consulting company that also undertakes research on behalf of industry body, the Association for Savings & Investment SA (Asisa). This research confirmed that South Africans are dreadfully under-assured when it comes to ensuring their dependants will be able to maintain their lifestyle if the unexpected happens. True South undertook the new research on behalf of new life assurer on the block, BrightRock. Its brief was to investigate the consumer implications of the various premium pattern options that are available from South African life assurance companies. The research was based on information from four unnamed major life assurers. Actuary Paul Zondagh of True South says the research shows that if you simply pick the lowest initial premium, it will probably come with the most aggressive future increases, with two consequences: * You will pay more in total over time, both in nominal values and also in present-day values adjusted for inflation. The difference in the total amount you could spend on premiums between an initial “cheap” and an “expensive” premium policy can be very dramatic, depending on the term (number of years), your age and the assured amount when you take out the assurance. * “Cheap now, expensive later” premiums will take up a greater and greater proportion of your income and will probably become so expensive over time that you might not even be able to afford the future premiums. “This could lead to a forced lapse of a policy, the effect of which could be exacerbated if your health has deteriorated at that point and you are unable to find alternative cover, when you could possibly need it most,” Zondagh says. If you suffer from a disabling disease when you are older and you can no longer afford to pay the high premiums, you will not be able to switch to another assurer because it will either not offer you assurance or, if it does, could load the premiums to take account of your illness and/or exclude the illness from any benefit payment you would otherwise receive. The average age to which a South African male now aged 20 will live is 59 years and seven months. A female aged 20 can expect to live, on average, to age 66. These figures are affected by Aids, but if the Aids figures are excluded by using the last mortality tables before the pandemic, the average age of death of both a 20-year-old male and female is 72 years and nine months. Suzanne Stevens, BrightRock’s executive director: marketing, says research indicates that many chronic conditions, such as hypertension and diabetes, are more likely to manifest as you get older. This would mean that the likelihood of your being able to get cover with no exclusions or loadings diminishes. So later in life, when you need your cover, it would possibly be when the cheap initial premiums have become unaffordable. Schalk Malan, executive director: actuarial at BrightRock, says the findings of the True South study reflect “our inherent concern about the sustainability of some aggressive ‘buy now, pay later’ premium patterns commercially available in the South African marketplace. The danger is you will lapse your policy. “At BrightRock we believe if a policyholder buys cover for long-term financial needs, it’s key that the cover stays the course. During that journey the policyholder needs to be able to afford the premium options and their effect on share of wallet over time.” He says BrightRock has modelled its products on overcoming the affordability problem revealed by the research by introducing needs-matched assurance that changes dynamically throughout a policyholder’s lifetime. “The premium for assurance needs that are no longer needed, such as education of children, falls away, and the premium for needs that remain long-term, such as estate duty or support of a spouse, is set at a rate that remains affordable as a percentage of wallet. This approach gives policyholders relevant cover that matches their precise needs, cutting out unnecessary waste, and ensures maximum premium efficiency and sustainability,” Malan says.

PRETORIA – If you choose a cheaper life insurance premium initially, it can hurt you in the long run as these premiums become extremely expensive over time, due to aggressive annual increases that are well above inflation. This is one of the findings in a study released this week by True South Actuaries and Consultants for BrightRock Insurance, a licensed financial services provider that started operating in the market only last year. In a press release, True South says that those who pick the lowest initial premiums could be forced to lapse their policies as their premiums become unaffordable over time. Findings revealed policyholders were in some cases spending 60% more than what the more expensive initial premiums would have cost over their lifetime. One of the examples used by True South is for a 25-year old female, who could initially save R125 per month on her premium, but in doing so will spend R139 254 (or 50%) more than what the most expensive initial premium would have cost over her lifetime. “The initial cheaper option became more expensive from year 8 onwards,” the consultancy said. For a 40-year old male, who selects the lowest initial premium with the most aggressive annual increases, the percentage he will spend on income initially will only be 4%. This will, however, increase to 13% over 40 years. “Had he chosen the higher initial premium, with less aggressive annual increases, his initial spend would have been 5% and would still be at that level after 40 years,” the consultancy said. For the purpose of the study True South obtained 126 quotes, using different premium patterns, from four of the major providers of risk cover under the Long-Term Insurance Act. The quotes provided for life cover (whole of life), lump sum disability cover (up to age 65) and income continuation cover (up to age 65) for a number of hypothetical insured lives (split 50/50 between male/female and with entry ages respectively at 25, 30, 35, 40, 50 and 60). “The findings revealed that consumers need to carefully consider the implications of the choices they make when deciding how their long-term life insurance needs will be funded,” said Paul Zondagh, who led the research team at True South. Schalk Malan, BrightRock actuarial executive director, said that the findings reflect BrightRock’s inherent concern about the sustainability of some aggressive “buy now, pay later” premium patterns commercially available in the South African marketplace. “The study revealed that consumers who opt up-front for cheaper options may not be able to afford their premiums in the long-term, leading to lapses,” he said. In a 2011 study on the insurance industry in South Africa, KPMG warned that the industry was facing some challenges due to trouble on the international economic front. The memory of increasing policy lapse rates during 2008 and the first half of 2009, is still fresh in the minds of insurers. A volatile investment market does not bode well for the life insurance industry, KPMG said, indicating already that a worsening industry policy lapse rate was not unlikely. The True South study states that in South Africa, consumers have a lot of choice when it comes to life insurance, which means that they should choose carefully as the wrong choice might be costly over the long run. “In our view these results highlight the value of proper financial advice at the outset. This will ensure that the consumer makes a fully informed decision, which also achieves a balance between current and future affordability,” the study reads.

Price play can significantly affect the sustainability and affordability of life insurance for South Africans, who are already underinsured by an estimated R1.3 trillion.  A comprehensive study, released today, found cheaper initial premium options become more expensive due to aggressive annual increases that are well above inflation.       Policyholders are spending up to 60% more than necessary over their lifetime by choosing aggressive funding patterns.   Those who pick the lowest initial premiums could be forced to lapse their policies as their premiums become unaffordable over time.   Premium patterns are the long-term increases on life insurance policies. Policyholders have options to purchase cover with different premium patterns at the outset. It is at that stage they should ideally strike a balance between current and future affordability. The study, compiled by True South Actuaries & Consultants and commissioned by new entrant BrightRock, also found that generally what starts out as a small premium saving on a more aggressive premium pattern, might eventually grow to a much more significant percentage of the policyholder's income. By contrast, the share of wallet of a higher initial premium, with less aggressive future increases, in certain instances even reduces over time. Findings revealed policyholders were in some cases spending 60% more than what the more expensive initial premiums would have cost over their lifetime. Findings: some examples Lifetime cost of cover A 25-year old female can initially save R125 per month, but in doing so will spend R139 254, 50% more than what the most expensive initial premium would have cost over her lifetime. The initial cheaper option became more expensive from year 8 onwards. Share of wallet over time A 40-year old male selecting the lowest initial premium, with the most aggressive annual increases, will initially spend 4% of income on the premium, increasing to 13% over 40 years. Had he chosen the higher initial premium, with less aggressive annual increases, his initial spend would have been 5% and would still be at that level after 40 years. Extra lifetime cost At age 25 at entry, the additional percentage a male could spend over the lifetime of his policy by initially choosing the cheaper, age-rated option could range between 6% and 47% across providers. Paul Zondagh (Pictured above), who led the research team at True South, said: "The findings revealed that consumers need to carefully consider the implications of the choices they make when deciding how their long-term life insurance needs will be funded. "In most instances, for consumers who select cheaper initial premium patterns, policies with initial small savings become significantly more expensive when viewed over the lifetime of the insured." "Consumers who choose higher initial premiums experience lower increases in the portion of the portion of his wallet consumed by their premiums." The study looked at premium patterns across gender and at different entry ages from 25 to 60. True South obtained 126 quotes, using different premium patterns, from four of the major providers of risk cover under the Long-Term Insurance Act. Said Zondagh: "The comprehensive study revealed the value of getting proper advice at the outset to ensure your chosen premium pattern is affordable and sustainable in the long-term. "Thanks to these findings, consumers have a chance to review and scrutinise their current policies and future needs."

Getting excited about life insurance may sound like an oxymoron, but as I sat through the presentation of new long-term insurance company BrightRock, that is exactly how I felt. Finally I had found the life cover for which I had been waiting. As I walked out of the presentation, I called my adviser and told her to look into it immediately.What BrightRock has recognised is that the insurance cover you need today is in all likelihood not the insurance you will need in 20 years' time. Yet, with traditional life-cover products, you buy cover today that is priced for you to hold until you die at your estimated mortality date somewhere in your late 70s, even if you do not need it. Right now, my liabilities are high. I have a hefty mortgage and two young children and I am an equal breadwinner, so my insurance needs are large. In fact, my adviser told me that I am running a "shortfall" of about R2-million on my current insurance, but I have no idea how she reached that figure or what exactly my needs are.What also frustrates me is that in the next seven years my mortgage will be fully paid (if all goes according to plan), my children will have only 10 years of dependency left and my savings will have doubled, which means my insurance needs will have halved. What I need is a product that allows me to increase and decrease my insurance needs as required.That is exactly what BrightRock provides and, in so doing, it reduces my cost of insurance.What BrightRock has done is to quantify your specific needs and then calculate a premium against each one. Rather than giving you some arbitrary reason for why you need cover worth R5-million, BrightRock breaks it down to what you need to cover each month, such as your mortgage, household expenses, children's schooling and medical aid. Then it provides an individual premium to cover each of these costs. Now I know exactly what expenses I need to cover and how much each need will cost. If you cannot afford all the premiums, you have a clear idea of where the shortfall lies and can therefore prioritise cover and calculate how your current savings and pension would address it. In short, it allows you to plan effectively.One of the ways BrightRock is able to cut premium costs is to base the cover on how much longer you have a liability, such as your mortgage. If you only have 10 years left on your mortgage, it will quote you for life cover for only those 10 years. As a result, the premium costs are driven down significantly, because the risk of you dying in the next 10 years is significantly lower than the risk of dying in the next 30 years, which is typically how a traditional insurance product would be priced.About 90% of insured consumers opt for an age-rated policy because of its affordability. Because the policy is priced according to your age, it is cheaper when you are younger but then escalates aggressively as you get older. By the age of 50, it starts to become unaffordable, so you cancel the premium, hoping that by then your mortgage is paid off and the children are off your hands. Basically, you take out insurance with the full understanding that it will become unaffordable and that you will cancel it in the future. "These insurance products aim to price you out of the system," said Rob Rusconi, non-executive director at BrightRock.By insuring through BrightRock, I can take out the cover I need today. And as my mortgage is paid off, my savings increase and the number of years I need to provide education for my children is reduced, I can cut my cover and my premiums further.However, if I face a major life event such as a child becoming disabled and a dependant for life, or I decide to buy another property and take on more debt, I can ramp up my cover again with limited underwriting. Each year, I am able to sit down with my adviser and reassess my needs. Under traditional policies, changing cover would incur additional costs because the policy would have to be cancelled and a new policy issued.The product will be available only through independent financial advisers and at this stage is not offered directly, but a client can choose for the commission structure to be either upfront, pay as you go, or a combination of both. Keep in mind that upfront commissions always cost you more because they have to be funded through the policy, incurring interest costs. At the end of the presentation I did wonder: "Is this too good to be true? What am I missing?" BrightRock has been partnered with and funded by insurance group Lombard Life, which has also provided the licence. Rusconi, who is also Lombard Life's general manager, blew the whistle on the costs of the pension-fund industry and is viewed as having credibility in the industry. Founders include former industry players such as Miles Japhet, who was managing director of Hollard Insurance Group, and Suzanne Stevens, formerly at Discovery Life.The company is underwritten by mega reinsurer Hannover Re and regulated by the Financial Services Board, which requires it to have enough reserves to pay out all policy holders should it close shop. The one concern is that it is a challenge to compare quotes, because no other life insurance company offers a similar product. What my quote did, though, was show exactly where my shortfalls lay and how it would impact on my planning. I need to reassess where I want to beef up my cover and which liabilities my current savings will cover, but I feel more in control because I understand exactly what is being covered. The science behind this product is not really new. It is just the way the company has packaged the various existing insurance options into one cover to provide flexibility and make it more accessible and easier to understand. Clients like to have a full understanding of what it is they are buying and why, which is something BrightRock has achieved. There is no doubt that this ­product is going to deliver a good shake-up in an insurance industry that desperately needs it.  

BRIGHTROCK, a company formed last year by a team of seasoned insurance professionals, entered the individual life market last week. The company has financial backing from the more than 20- year-old Lombard Insurance Group, and will use its life insurance licence to market a product not seen in the local market before, BrightRock actuarial director Schalk Malan said in Durban on Friday. Miles Japhet is BrightRock’s executive chairman. Mr Japhet was a member of the team that founded Hollard and was its MD for 14 years. Mr Malan said there was concern in the life industry about premiums tending to become unaffordable for a policyholder over time. BrightRock had devised a "needs-matched" approach to life insurance. The industry practice had been to offer modular, pre-packaged products, elements of which customers chose. BrightRock’s product enabled clients to alter their cover according to their needs, Mr Japhet said. Death, disability and dread disease are the key events that trigger a claims payout in traditional life insurance. "But with these products there is no visible link to the client’s actual needs and how their needs change over time," he said. BrightRock grouped risk into six needs: debt, healthcare, education, household expenses, estate duty, and additional illness related needs. The ability of a client to match insurance cover with their needs over a lifetime meant greater affordability, efficiency and sustainability of premiums, he said.

Johannesburg. – Ou bekendes in die versekeringsbedryf het gister ’n nuwe versekeraar bekend gestel met ’n produk waarvan mededingers beslis gaan kennis neem. BrightRock is op die been gebring met finansiering van die Lombard Insurance Group, wat ook die beheermaatskappy van Hollard is. BrightRock sal sake doen onder die lewensversekeringslisensie van Lombard. Mnr. Miles Japhet, een van die stigters van Hollard, is die nie-uitvoerende voorsitter van BrightRock. Ander personeellede van Lombard wat dien in die nie-uitvoerende bestuur van BrightRock is mnre. Johnny Symmonds, besturende direkteur van Lombard, en Rob Rusconi, hoofbestuurder. Die uitvoerende direkteure van BrightRock is me. Su zanne Stevens en mnre. Sean Hanlon, Leopold Malan en Schalk Malan. Japhet sê die produk waarmee die maatskappy vorendag gekom het, is die eerste in sy soort in die wêreld en “sal ongetwyfeld mededinging lok”. BrightRock noem dit “behoefte-gerigte risikodekking”. Al wat die produk met tradisionele versekeringsprodukte gemeen het, is dat dit risikodekking bied. Mnr. Schalk Malan sê die hoofdoel van BrightRock se versekeringsproduk is om seker te maak dat die dekking wat hy vir bied vir dood, ongeskiktheid en gevreesde siektes asook enkele ander risiko’s, by die kliënt se behoeftes pas. Daarom het hy, anders as ander versekeraars wat ’n voorafbepaalde bedrag uitbetaal in geval van ’n eis, ’n produk geskep wat aanpas by die kliënt se spesifieke finansiële behoeftes ingeval van ’n eis. Daardeur wil hy die probleem uitskakel dat mense nie te veel versekering het vir een risiko terwyl die behoefte aan ’n ander groter is nie. Malan sê die produk en premies word aangepas namate die behoefte van die kliënt verander en as die risiko verklein, kan die premie geskuif word na dekking vir ’n ander risiko. Anders as met tradisionele lewenspolisse kan die kliënte ook self besluit met hoeveel die dekking moet styg, wanneer presies dit aangepas moet word en wanneer dit moet uitbetaal. Malan sê die polis is ontwerp om te voorkom dat premies op polisse aanhoudend styg tot waar dit in sommige gevalle onbekostigbaar word en dit ruim ook die moontlikheid van té veel versekering vir ’n spesifieke risiko uit die weg.

The life insurance market in South Africa entered a new era this week as a player has arrived on the financial scene. BrightRock (Pty) Ltd is to compete with the ‘big guns’ in the individual life market. Formed in 2011, this company has managed in a short space of time to develop a unique product structure and systems technology to enable what the organisation describes as a “need-matched” approached to life insurance, with the aim of closing gaps and proving clients with more relevant, efficient cover. With its policies set to go live on April 1 this year, BR’s non-executive chairman Miles Japhet has already outlined strong financial backing from the Lombard Insurance Group (LIG) for the start-up venture and a tailored, highly differentiated life insurance product offering not seen in the market place before. An insurance industry stalwart Japhet says BR policies are constructed around the individual’s needs, which change over time. “Customers are able to shape and alter their cover according to their needs. As they change, so does the policy.” He continued: “Whereas most insurance policies focus on the events they are designed to cover, BrightRock policies place the emphasis on ensuring that when an insurable event occurs, the cover meets the need. Although Japhet is praising the SA life industry as being one of the world’s most innovative and advanced, he says the norm so far has been for life insurers to offer modular, pre-packaged products, elements of which customers pick and choose. “BrightRock covers the same insurance events as other policies, but maps this cover back to clients’ underlying financial needs. Customers are able at the outset to make a wide range of choices about how their cover should grow and change, to stay relevant and in tune with their needs. Even when those have been made, it is easier for clients of BrightRock to make changes to their cover should their circumstances change. The start-up’s primary reinsurance treaty is with one of the world’s largest reinsureres, which has an AA- rating from international ratings agency Standard and Poor’s. BR is to distribute its products nationally through independent financial advisers. Currently the company has national distribution footprint with regional hubs in Cape Town, Durban, Johannesburg and Pretoria. Another plus for BR is not only because of the backing from LIG which has more than 20 years of experience. But also the fact that LIG operates in the short-term, credit risk and long-term insurance industry, currently holding over R1, 3 billion in assets on its balance sheet. While BR is operating under LIG’s existing life licence. BR’s founding executive are Sean Hanlon, Leopold Malan, Schalk Malan and Suzanne Stevens.

After radio listeners misunderstood the message of a radio ad campaign, life insurer BrightRock has given them the opportunity to change the ad. BrightRock will allow consumers to script its radio advert for its Love Change campaign through a newly-launched Facebook page and the ‘you change our ad’ application. The advert about a dad meeting his new-born son for the first time has been aired on Talk Radio 702 in recent weeks. The message of the advert, Love Change, is that outdated attitudes need to change. But some listeners did not interpret it in this way. “At BrightRock, we pride ourselves on our ability to meet your needs and to respond as those needs change. So, we are heeding 702 listeners’ feedback, and giving you the chance to change our advert,” says Suzanne Stevens, BrightRock’s executive director of marketing. The winning script will be recorded and aired on radio while the script writer will get to attend the studio recording. According to Stevens, BrightRock’s life insurance changes as your life changes. “While most people fear change and the uncertainty it brings, BrightRock clients can love change, and the new choices and opportunities it brings.” For its radio advert, BrightRock chose the birth of a child as one of life’s milestones. “The winning script will be one that best reflects the fears, hopes and aspirations of a father for his new-born son,” adds Stevens. The promotion kicked off on Talk Radio 702’s Jenny Crwys-Williams show on Wednesday. Visit their Facebook page to find out more. BrightRock’s Love Change campaign made headlines late last year when a young man asked the love of his life, Tarryn, for her hand in marriage in front of a captivated cinema audience. Much to the dismay of movie-goers, Tarryn said no. As it turns out, BrightRock staged the whole performance and made sure cinema-goers heard its message through this marriage proposal. Read the story here.