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Financial Planning

How income benefits can ease medical aid hikes

By: FMI, a Division of Bidvest Life Ltd

Moonstone recently released the 2021 medical aid price increases. According to the article, most medical aids are doing their utmost to limit adding to the existing financial strain felt by consumers. Some organisations have decided to delay premium increases to the second half of 2021, others are only increasing premiums by around 4% and then there are those who are increasing premiums by as much as 8.7%. 

The economic challenges consumers have faced this year amidst the COVID-19 crisis are not simply going to disappear overnight and even the temporary price freezes may do little to ease consumer daily financial worries.

According to a recent TransUnion research study1, 79% of South Africans said their household income has been negatively impacted by the COVID-19 pandemic; and 89% said they were worried about how they were going to meet their monthly financial obligations like paying for rent, utilities, and debt.

Any medical aid premium escalations put even more pressure on decreasing disposable incomes. At this time of year, when medical aid policies come up for annual review, consumers have to take a hard look at their budgets and make some tough financial decisions. Life insurance is often viewed as a grudge purchase and, as a result, insurance policies are often the first on the list to go in tough financial times. 

And yet, the heightened chance of falling ill in this current COVID-19 climate only compounds the magnitude of risks South Africans face on a daily basis and the consequential negative financial impact, which is all the more reason for customers to be vigilant about making sure they hold onto their medical aid policies and have some form of income protection in place.

One way to ease the financial burden for those who only have lump sum life and disability cover in place is to consider rebalancing their portfolios by introducing income benefits and thereby reducing the amount of lump sum cover required. A simple shift to income benefits can make a difference as they are often more cost effective than the lump sum equivalent. Customers can use these premium savings to lighten their month-to-month financial burden by offering the much-needed savings to cover medical aid premium hikes.

By re-balancing your clients’ risk portfolio, you may well not only be saving them money, but offering them a better cover solution. 

At FMI, we believe the best way of ensuring your clients’ income stream is never interrupted as a result of an injury, illness and death, is by making sure that their income is 100% protected to cover all their monthly expenses. Complementary to this, is to then use lump sum benefits to cover any additional or once-off costs. This way, your clients are not only covered for disability and death, but for temporary illnesses and injuries as well. 

When it comes to life cover specifically, considering some form of Life Income benefit removes inflation and investment risk as there’s no need to predict required lump sum amounts based on assumptions around future interest, inflation and annuity rates, and how long a beneficiary will live for. This often results in a lump sum payout being too low, whereas income benefits match beneficiaries’ needs exactly, for as long as they need it. 

This simple shift may help play a small part in alleviating some of the month-to-month financial strain because income benefits equate to lower insurance premiums and savings, which can be put towards catering for much needed medical aid premiums. Give your clients one less thing to worry about; secure their monthly income by opting for this Income First approach.  

1Research conducted by TransUnion in partnership with third-party research provider Qualtrics Research-Services. 

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