Financial Planning

Are your clients financially prepared for the third wave?

Disability insurance should be a priority

As South Africa enters a third wave of increasing Covid-19 infections, the reality for some that get infected is that the road to recovery, if at all, may be long and strenuous. In addition to the physical challenge of illness, there are also financial implications to being unwell. Latest research by the Association for Savings and Investments South Africa (2019) revealed that South Africans bear a combined shortfall of R2.2 million when it comes to life and disability cover, highlighting the vulnerability of ordinary South Africans in the face of illness.

According to Marwan Abrahams, Executive General Manager: Broker Distribution at Old Mutual, “the gap between what we need and what we have has certainly widened further for many individuals since the onset of Covid-19, particularly as it relates to catering for the unexpected. Through our Old Mutual Savings and Investment Monitor Covid-19 Special Report and our engagements with both Independent Financial Advisers (IFAs) and customers, we are well aware of the difficulties people are facing.”  

“This is precisely why the development of the third wave and the risk of having to battle a serious variant of Covid-19 for a long time should cause us to challenge our customers to pause and help them consider how they would cope in the event of illness or disability, be it temporary or long term.” 

Old Mutual’s 2020 Claims Statistics Report highlights the significant impact of the pandemic on customers, including several year-on-year spikes within the disability income claims category. Sickness Income claims increased 3.5 times, with the highest cause of claims falling under ‘infectious diseases’, the category used for Covid-19 claims. For the first time ever, ‘infectious diseases’ showed up under the disability income category at 10%. Psychiatric disorder claims such as major depression (still within disability income) rose by 9%, continuing the four-year upward trajectory. 

“While many South Africans are generally aware of the importance of saving for emergencies, many fail to take the necessary steps to protect themselves against the most fundamental of financial threats, which is the inability to earn an income from one month to the next.” 

From this perspective, Abrahams emphasises the importance of disability insurance in a customer’s holistic financial plan. 

“It is our duty to not only help customers make the most of their money, savings and investments, but equally to help protect those who work and rely on their income against the unexpected.” 

“Although these are difficult and uncomfortable conversations to have, it’s what our customers need from us, and dare I say, expect. They expect from us assurance that we will guide them along the path of making the best decisions to safeguard their wellbeing and that of their loved ones, in even the most difficult of situations.” 

From experience, Abrahams says “Individuals who have income protection products are most likely to receive a payout quite early into the progression of their illness or injury due to the nature of such products. Customers can choose their waiting period, which can be as short as seven days in some cases, and it doesn’t only cover them for permanent disabilities, but those which are temporary and partial too.”

While Old Mutual’s 2020 Claims Statistics shows a 25% increase in the number of claims for disability income, it also shows a decrease in the number of single amount disability claims. However, Abrahams says “both are equally important components of a customer’s comprehensive financial plan.” 

Whereas disability income cover enables individuals to keep up with their day-to-day financial responsibilities, lump sum cover will be needed in the event of a customer becoming permanently disabled, as pay-outs can be used for large once-off expenses like settling debt or to help adapt to a disability, e.g. modifying their car, installing assistive equipment in their home like a rail to transfer your wheelchair upstairs or simply building a ramp leading to the house. 

“While it is impossible to predict the future, it is important that we help our customers plan for it. Disability insurance can protect financial wellness and is an indispensable tool that will assist customers to better manage their finances,” concludes Abrahams.  

Click here to read Old Mutual’s 2020 Claims Statistics report.

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