Lifestage 1: Early Earners
Income earners under the age of 30 are dangerously underinsured with only 35% of the Disability cover they need in place.1 A further problem exists where Disability Lump Sum benefits outsell Income benefits on a 3: 1 ratio.2 Given that a lump sum will only pay out for permanence, this ignores the fact that an individual’s real need is to protect their income stream. And leaves them exposed to the most likely risk of a temporary injury or illness.
Fueling this insurance gap is the fact that these young individuals just don’t connect with the need for this type of insurance and are therefore often viewed as the harder nut to crack. We call this market segment Early Earners – young individuals just starting out, with no dependents and who do not yet own property. They are skeptical of the insurance industry. They want to make their own decisions, rather than blindly trusting the conventional route. They don’t think life insurance is relevant to them because they view it as death cover. And they believe they’re invincible and will never be too sick to work.
The good news is this is an untapped market brimming with potential, and while there may be some work to do around building trust, their need for financial stability and freedom is a powerful draw-card for advisers to call on.
HOW TO HAVE THAT CRITICAL CONVERSATION?
At FMI, we’re committed to supporting you, the adviser, through the process of offering the best possible advice to your clients. Creating awareness around an individual’s future earning potential and where their real risks lie will help Early Earners understand their specific cover requirements.
Calculate their future earning potential
By using FMI’s Future Income Calculator you can quickly and easily calculate an individual’s specific future earnings. And it will surprise them! Take a 25-year old earning R15 000 a month as an example. They will earn a staggering R38.3 million over their working lifetime3. This is what they are needing to protect.
Explain their real risks and compare the cover options available
There are 4 possible risk scenarios any individual needs to protect themselves from financially – a temporary illness or injury, a permanent disability, a critical illness and death. It’s important to point out the probability of each of these events occurring, and the best possible solutions to counter-act each scenario.
For example, a 25-year old has a 96% chance of experiencing a temporary injury or illness that will stop them from working for more than 2 weeks during their working career. By comparison, they would only have a 14% chance of a permanent disability, a 29% chance of a critical illness and only a 9% chance of death during their working career.4 Traditional Lump Sum benefits will not protect an Early Earner from their most likely risk of a temporary injury or illness, so the best approach would be to ensure they have temporary and long-term Income cover to make sure they’re protected in such an event. And if an individual has no debt or dependants, there is most likely no need for any Life cover. With FMI’s Future Income Protector option, they can add this benefit later in life, when they need it – with no underwriting, even if they’ve claimed on their policy.
The key message to Early Earners? Your income enables your lifestyle and your future dreams. Protecting YOUR INCOME FIRST is the core to your financial future and the foundation of any sound financial plan.
1ASISA Gap Study
2FMI Disability Cover Study 2018
3FMI Future Income Calculator. 6% nominal growth, retirement age of 70
4 FMI Risk Stats 2019. Risk stats calculated on probability for 25-year old before retirement age of 70.