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Financial Planning

Let’s get technical – Cover for Students and Homemakers

By: Elmarie Samuel, Product Marketing Specialist at FMI (a Division of Bidvest Life Ltd)

FMI has been protecting South Africans’ incomes for over 25 years. Our vision has always been to be able to protect everyone who earns an income. As a result, today, we cover more occupations than any other insurer. In 2015, we introduced cover for students and homemakers. Whilst these individuals don’t earn an income per se, we know the impact they make has huge financial value.

At our recent monthly Technical Tuesday webinar, I sat down with our Head of Product & Pricing, Nic Smit, to chat about FMI’s thinking behind offering income protection to non-income earning individuals and how we’re able to determine the optimal cover amount.

FMI Event Based cover for Students

Why does FMI offer income protection to students?

Essentially, the purpose of a student policy is to protect parents against risk should their child become sick or injured for a short or long period of time. From a parent’s point of view, when a child starts tertiary education, they’re nearing financial independence. And while, as a student, they’re not earning an income, if they were to get injured or sick for a short period of time, this would have a knock-on effect on their ability to complete their studies in the prerequisite amount of time.. This would have an impact on how long that individual will take to become financially independent, which ultimately falls onto the parent to fund. And if something were to happen where they couldn’t work for a very long period of time or even permanently, they may never become financially independent and it would rest upon their parents to support them for the rest of their life. 

How is insurable income for students determined?

When developing this product, FMI’s approach was first to calculate what level of cover gets a student up to the minimum premium of R100 a month, which is R12 000 a month worth of benefits that protect your income from the risk an injury or illness. That’s R144 000 a year, which is an appropriate amount of cover to take care of the costs that would be incurred by having a child at university. When it comes to lump sum benefits, FMI offers cover of up to R1 million for students.

FMI Event Based cover for Homemakers

Why does FMI offer income protection to homemakers?

While it’s true that homemakers do not earn an income, it’s definitely not true that they don’t do any work. Responsibilities could include taking care of the kids, transporting them to and from school and other activities, cleaning the house, cooking meals, doing the grocery shopping etc. And if a homemaker were to become injured or ill and couldn’t perform these duties, there would be one of two options to consider: either the breadwinner themselves would have to take on those responsibilities, or those duties would need to be outsourced, for example. hiring a nanny or driver. So yes, a homemaker doesn’t earn an income, but the financial impact on the household is definitely affected by the ability of a homemaker to perform their duties.

How is insurable income for homemakers determined?

The amount of cover should be in relation to their partner’s income. Therefore, we cover up to 75% of the partner’s income with a maximum cap of R50 000 (the lesser of the two). We arrived at this figure from research we did which looked into the cost of replacing all the duties of a homemaker, the financial impact being much bigger than one might initially think.  When it comes to lump sum benefits, FMI offers cover of up to R2 million for homemakers.

If you enjoyed this excerpt and would like to find out more, click here to watch the full Technical Tuesday February Edition webinar.

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