Many people believe that only the family breadwinner needs to have life, disability and severe illness cover. This view is fundamentally flawed, a financial planning professional says.
Craig Torr, director at Cape Town-based financial planning practice Crue Invest, says that just because the stay-at-home partner does not earn an income does not mean the family would not suffer financial loss if that person were to die or become disabled.
“According to our financial planning principles, we believe in preparing a joint financial plan for both spouses – irrespective of who works, who doesn’t, or how much each earns,” Torr says. “Regardless of income, qualification or career, the couple is running a joint household and is jointly responsible for the financial future of the family.”
Torr takes as an example a family of four, where the wife is the sole breadwinner and, by mutual agreement, the husband is a stay-at-home father to the couple’s two small children. The natural, and correct, assumption is that the wife would require assurance in the event of her own death or disability, Torr says. If she were to die, she would need her life cover so that her husband could maintain the family’s standard of living , invest for the children’s education and fund his retirement. If she were to become disabled, she would need her disability cover to pay her a monthly income until she reaches retirement age. And if she were to suffer a debilitating illness, she’d probably also require lump-sum severe illness cover to provide capital to cover the additional expenses.
“However, many couples fail to ask the question: what would happen to the working partner and children if something happened to the stay-at-home partner – in this case, the father?” Torr says.
A host of functions would have to be replaced, he says. The stay-at-home parent’s job description is likely to include performing household chores, grocery shopping, paying and managing domestic workers, lifting children to and from school and extra-murals, liaising with schools and teachers, supervising homework, and preparing meals and school lunches.
“The reality is that a full-time father might not earn an income, but he does work. His role is the most important job on Earth,” Torr says. If the husband were to die, questions the breadwinner wife would need to consider are:
• Would I have to hire an au pair or a child-minder to take care of the children in the afternoons?
• Would I need to hire a tutor to help my children with homework?
• What would happen during school holidays? Would the children go into holiday care, or could I rely on other members of the family to look after them?
• Would I need to hire a domestic worker (or increase domestic help) to prepare meals ?
• Would I consider cutting back on my hours of work in order to spend more time with my children?.
• Would I consider having my parents (or in-laws) move in with me to assist with the children?
Torr says: “Our society, in general, undervalues the role of the stay-at-home-parent, and this is never more evident than in the field of financial planning. In the words of GK Chesterton, ‘How can it be a small career to tell one’s own children about the universe? How can it be broad to be the same thing to everyone and narrow to be everything to someone? No, a [stay-at-home parent’s] function is laborious, but because it is gigantic, not because it is minute.’”
The reality is that the loss of a stay-at-home parent is greater than anyone can quantify, and you need to consider risk cover for that person too, Torr says.
Needs-matched cover for stay-at-home parents
Schalk Malan, the chief executive of life assurer BrightRock, says although his company is not the only provider to insure stay-at-home parents, its needs-matched approach to life and disability assurance makes it well suited to do so.
“With BrightRock’s needs-matched product structure, disability and income protection cover for a stay-at-home parent can be uniquely tailored in terms of cover amounts, premium increases and pay-out structure to meet the family’s household, childcare, healthcare and debt needs. Unique features include the ability to choose between a lump sum and a recurring income at the point of claim, when the family better understands the stay-at-home parent’s prognosis and their financial needs. Families can also buy additional cover or change cover when their needs change, without medical underwriting.
“BrightRock will calculate the stay-at-home parent’s ‘income’ at a maximum of half of the working spouse’s income, and maximum rand limits apply. Income-earning clients who choose to become stay-at-home parents, take time off work or take extended maternity leave will keep all their BrightRock cover in force at their existing cover amounts for up to 12 months. In both of these scenarios, clients will continue to have access to the additional features of our product offering, which enables them to change their cover as their needs change.
“We believe it is worth protecting income for stay-at-home parents, given the role they play in families’ financial well-being,” Malan says.
This article first appeared on Saturday, 1 July 2017 in the Personal Finance section of Independent Newspapers (The Weekend Argus, Pretoria News Weekend, Saturday Star and the Independent on Saturday), as well as IOL.co.za. Click here to read the original version.
You are planning to start a family, but how do you ensure that you cover your child’s financial needs should something happen to you and your spouse? By Jessica Anne Wood
Hein Klokow from Secure Legacy highlights that one of the most important conversations you need to have with your spouse and your estate planner is how you will provide for your children’s financial needs in the case of death of one or both of you.
But where do you start? Leopold Malan, executive director of BrightRock, stresses the importance of having your health cover and long-term insurance cover in place when starting a family.
Your parental concerns and plans will differ for parents with young children, to those with adult children. Furthermore, Klokow points out that those with handicapped or special needs children, or with children from a previous marriage will have additional considerations.
The first thing you should do when considering estate planning is to contact a qualified financial advisor who can advise you on your financial situation, and the potential financial needs of your children upon your death.
What financial products should you have in place?
Klokow emphasises that a common concern with minor children is how to provide sufficient income for them. Another is how assets will be managed and preserved to provide the financial resources needed until they reach adulthood.
Will Keevy, head of insurance at Insurance Busters, notes that the first thing parents should do is get a will with a testamentary trust attached to it.
“A testamentary trust is basically if something happens to both parents, then instead of the money going to the guardian’s fund, which is run by the government, it goes into a trust which is managed appropriately for the child, until a specific age, be it 18 or 21. It’s better managed, you don’t want the government to manage the kid’s finances. Whatever is left behind (finances after parents’ death) will then be applied to bringing up the child. It’s also important if you are going to have a guardian, the guardian needs to understand what you have in place,” says Keevy.
It is also important to have adequate risk cover in place. This can include things such as life cover and disability cover to other financial products. Keevy points out that you will need to insure your income so that it can be allocated to help with the education of that child and their other financial needs in the event of your death. Setting up a trust in your will does no good if there is nothing to invest in it when you die.
Malan points out that it is also important to prepare for any loss of income you may encounter. You should have long term insurance in place that is flexible enough for you to add cover as you start and add new additions to your family.
“Also remember that an unexpected complication with your child – like a heart defect, for example – can have a significant burden on your finances. There are long term insurance products that can provide cover for childcare in the event of a child’s critical illness, enabling you to be with and to support your child during critical periods like these,” reveals Malan.
The next thing you should consider when you have a child is saving for their education. This is often something that parents prioritise first, but Keevy stresses that while saving for education is important, you need to take care of the risk first. “You will always make a plan to get a child educated if you don’t have the savings,” says Keevy.
What about any property left behind?
Any property that parents’ may own needs to be considered in estate planning. What you decide will largely depend on where the child will live in the event that both parents pass away. Keevy notes that it is unlikely that in this type of situation a child would remain in the family home.
“I would rather sell the property and invest that money to help the guardians look after the child. You don’t want to dump your child on a guardian without any financial support, it’s also not right,” says Keevy.
When it comes to minor children, it is important to decide who you want looking after them in the event that you or your spouse die. It is vital that you discuss your decision with the person you have in mind to ensure they are willing to take on the responsibility.
“It is important to choose a guardian or set of guardians that are able to provide emotionally, financially and physically for your children, and who have agreed to be guardians for your children in the event of your untimely death. If you have your estate planning and life cover in place that makes provision for your children’s education and day to day living expenses (factoring in inflation, as well as the significant jump in expenses for tertiary education), you can have a lesser emphasis on the financial strength of your chosen guardian. Your choice of guardians should also be stipulated very clearly in your will,” highlights Malan.
There are a number of things you need to keep in mind when choosing a guardian:
“If anyone makes you the guardian of their child, ask if they have a plan in place. It’s all well and good being a guardian, I will bring up your kid as best I can, but you can’t put that financial burden on him/her. Very few people think of that,” notes Keevy.
When choosing a guardian, also be cautious of the age of the people you are choosing. While you may want your parent to be the guardian of their grandchild, are they the most suitable candidate?
“If your parents are younger, fair enough, but you have to take into consideration, by going and living with grandparents think about the environment you are going to grow up in, versus growing up with other kids,” says Keevy.
With older guardians health might also be a factor that could impact the desired guardian’s ability to care for your child. However, it is possible to create a hierarchy when choosing guardians. Here you will have your first choice of guardians (for example your parents), but if they are unable to unwilling to care for your child, you have a second person appointed to the role.
If a guardian hasn’t been appointed, Keevy explains that the State will get involved. “What will probably happen is they will go to the closet family. But do you want that decision to be made for you by somebody else?” notes Keevy.
Klokow adds: “Every family is different with its own circumstances. It is essential to have an up to date will. Speak to a specialist estate planner to assist you in weighing up the advantages and disadvantages of different estate planning structures, taking into account all the relevant factors applicable to your situation. A rushed decision may have irreparable consequences for your loved ones.”
This article first appeared in Just Money on 8 June 2017. Click here to read the original version.
As the world observes AIDS Awareness Month, BrightRock now offers solutions for people living with HIV
It’s holiday time. A much-needed opportunity to rest, relax, recharge and unwind after a hectic year of change. But December is also a month of reflection and remembrance, as the spotlight shines on the fight against HIV/AIDS.
This year marks the 28th annual observation of World AIDS Day and AIDS Awareness Month, which has special significance in South Africa.
Here, more than 6-million people, or just under 12 per cent of the population, are living with HIV, one of the highest rates of infection in the world.
The good news, according to a 2015 report by Statistics SA, is that life expectancy for HIV-positive South Africans is increasing, thanks to improved access to medication and treatment.
While finding a cure for HIV/AIDS still seems a distant dream, there is progress being made towards finding a vaccine.
At the The International AIDS Conference in Durban this year, Linda-Gail Bekker, Deputy Director of the Desmond Tutu HIV Centre in Cape Town, announced 5 400 HIV-negative people across South Africa would be testing a new HIV vaccine called HVTN 702.
This vaccine, which will be trialled on people aged between 18 to 35, is designed for South Africa, and the project will run for three years. If the vaccine is successful, it will be the first preventative vaccine in the world.
HIV is now widely regarded as a manageable chronic condition, and people living with HIV now have greater access to life insurance too.
While some companies focus specifically on providing life insurance cover to HIV positive people, traditional insurers only recently started to accommodate HIV positive clients in their product offerings.
At BrightRock, we’re pleased to be able to offer solutions for people living with HIV, provided they have been treatment-compliant for a period of time and continue to comply.
We support World AIDS Awareness Month, in the hope that greater knowledge and scientific breakthroughs will one day lead to the end of an epidemic that has cost so many lives and affected so many people.
*Please speak to your financial adviser for more information on BrightRock’s solutions for people living with HIV.
You don’t have to be in perfect health to take out life cover, but you may pay a higher premium or have specific exclusions applied to your policy if your risk of claiming is higher than average, writes Patricia Holburn
If you are worried that poor health may disqualify you from taking out life, disability or critical illness cover, take heart: life assurers won’t automatically decline your application, but will assess your individual risk factors and decide what cover to offer and the premium.
Less than two percent of applications for cover are rejected, Dr Marion Morkel, the medical officer at Sanlam, says.
“We realise people need long-term insurance, because it protects their financial interests. We are here to offer that service. We decline reluctantly,” Dr Dominique Stott, the executive of medical standards and services at PPS, says.
When you apply for life assurance, the provider assesses the likelihood that you will claim for specific benefits. This assessment is based on the information you provide in the application form and on medical tests or records.
Cover at a higher rate
“A loading is an additional cost applied to your premium when a life assurer believes that, statistically, you are more likely to claim than the average person,” Hayley Taylor, the head of underwriting at Hollard Life, says.
Loadings are a certain percentage above the rate for clients with a standard rate profile, usually expressed in increments of 25 percent, Morkel says.
Loadings of 50, 100 and 200 percent are common.
“Every company determines the level or threshold at which they would not offer above this rate. This threshold is usually determined by affordability. It makes no sense offering a product that is completely unaffordable and that, over time, costs more than the potential benefits embedded in the products offered,” Morkel says.
She says that, as general rule, an application is declined when the rate is three-and-a-half times the basic premium.
Gareth Friedlander, the head of research and development at Discovery Life, says Discovery generally declines policies when the mortality risk is greater than 400 percent of the standard rate.
The cost of a loading is not just the higher premium; there is also an opportunity cost. For example, you will have less money to contribute to retirement savings if your life cover is expensive. However, you have to weigh up the extra cost against the financial risk of not having cover at all.
“An exclusion is applied to your policy if an assurer determines that the risk of you making a claim related to a medical condition, dangerous hobby or risky occupation is too great. In that case, an assurer would provide you with cover with no additional cost, but let you know upfront that it won’t pay a claim related to that specific condition, hobby or occupation. Exclusions can be permanent or for a specific period of time,” Taylor says.
You may be concerned that excluding claims for certain conditions negates the point of having cover in the first place, but Taylor disagrees.
“Exclusions are often very specific, which means they limit your ability to claim as little as is reasonably possible,” she says.
Malan says: “We try not to prejudice the client against injuries that would have occurred irrespective of the condition. An example of our approach was where we had a client with an existing back condition that resulted in an exclusion on the existing back ailments. The client sustained a new injury to the back in a car accident, and, as a result, the cover paid out for this injury, as it was in no way a result of, or aggravated by the existing condition, and the exclusion did not apply.”
Individual risk assessment
Because each non-standard life is assessed individually, there are no set rates for certain conditions. An assurance company will be able to tell you what benefits it will offer once it has assessed your application.
“Rates differ from case to case and depend on numerous factors, including age, risk factors and what type of cover is applied for. Insurers are very individual in their treatment of non-standard lives,” Hesta van der Westhuizen, an advisory partner at Citadel Wealth Management, says.
In her experience, Van der Westhuizen says life companies have become more willing to consider offering cover to clients who are not in perfect health, or who are at risk of developing a condition, or who have suffered an illness.
Stott uses the example of a person who had a minor heart attack five years ago. Since then, he has followed treatment and lifestyle programmes to reduce his risk factors – for example, controlling his cholesterol and weight. An underwriter would take this into account when assessing his risk, and although it is unlikely that he will be offered cover at standard rates, he is likely to be offered cover with a loading on his premium, Stott says.
The principles are similar where an applicant had cancer, but is now in remission.
“The underwriter would need to assess the long-term outcome (which is key to the decision-making process) based on various pieces of supporting information, like the type and stage of cancer at diagnosis, type of treatment received and time elapsed since completion of treatment,” Dr Philippa Peil, the chief medical officer at Liberty, says.
The type of treatment is also important in assessing risk, because certain treatments for cancer have long-term side-effects that increase the risk of developing other conditions, such as heart disease, Stott says.
Some assurers will provide cover for certain types of cancer if the remission period has been longer than two years, whereas others require remission of five to seven years before they will consider an application for cover.
If the risk factors for developing a serious illness are present, your risk and rating will be assessed based on the information provided.
Taylor cites the example of a 40-year-old man who has high cholesterol, a family history of high cholesterol and a father who suffered a fatal heart attack before the age of 50. This would place him in a high-risk category, and an assurer would apply a loading to his premiums for life, critical illness or disability cover.
But there are cases where the presence of risk factors does not mean that the risk is higher. Dr Morkel uses the example of breast cancer.
“If we are aware that a female applicant has a strong family history of breast cancer as a result of a specific gene mutation, this would place her in a sub-standard rates pool. However, on closer inspection, we discover that she has tested negative for this gene mutation and she has regular breast check-ups, all of which have been normal.”
These are regarded as merits that would change the initial risk assessment, she says.
Reviewing a premium loading
Most life assurers are prepared to review premium loadings and exclusions if there has been a significant change in your health, Van der Westhuizen says. This includes evidence that your current state of health is not as it was assumed to be when you were assessed initially, or that your condition has improved – for example, you had excessively high blood pressure, but it has been brought under control.
Some assurers may require you to monitor your condition, while others have programmes that are designed to control your medical condition.
Friedlander says Discovery Life will soon introduce a Managed Care Integrator that will enable certain policyholders to reduce and ultimately remove their premium loadings if they manage their health conditions via a managed-care programme provided by Discovery Health or Vitality. However, loadings for certain conditions – for example, coronary artery disease – are not reviewable, he says.
If your policy has a loading or exclusion, ask your assurer or financial adviser when and under what circumstances it can be reviewed. Remember, that if you have to undergo a medical test, the cost is likely to be for your account.
Should you try to obtain a lower rate if your premium has been loaded?
Van der Westhuizen says that, when you apply for cover and have to undergo a medical test, the results are stored in a central information register that is accessible to all assurers. Therefore, all life assurers will make similar decisions about the premium charged.
Loadings are pretty standard across the industry, Carina Knill, a financial planner at the Hereford Group, says.
Malan, however, believes it is worthwhile to shop around.
He says there are providers that use the latest needs-matched pricing technologies to better match cover to clients’ needs and deliver more value – an average of about 40 percent more cover per premium rand.
“This saving extends to non-standard lives, and is perhaps even more important where loadings impact on traditional policies, as efficiently priced premiums can serve to negate or reduce the impact of loadings significantly,” Malan says.
Protecting your income in case of illness or injury should be a vital part of your life planning, and BrightRock offers a unique solution to match your needs
So what do you do for a living? It’s one of the first questions we ask a new acquaintance, based on our natural interest in the passions, energies, and fields of endeavour that drive other people.
Of course, there’s a lot more to life than work, just as there’s a lot more to making a living than checking in and out of the office.
A good job will reward us, sustain us, and leave us feeling fulfilled: “Do what you love and love what you do,” as the mantra goes.
But what do you when misfortune strikes, and illness or injury prevents you from working and earning an income? With that prospect in mind, it’s important to ensure that your emergency plan includes comprehensive income protection cover.
But traditional insurance products don’t give you cover that really meets your needs when you claim. You may be uncertain when or if you’ll get a pay-out. And even if you do qualify for a pay-out, and as a result of this you might have your on-going pay-outs reduced or stopped even though you qualified initially, because companies may later reassess your disability and review your claim.
If you do manage to start earning some form of income again, some traditional insurance products might reduce their payment by the active income you are earning.
Traditional capital disability products often have waiting periods for up to 14 days, some even up to six months before paying out your cover. The purpose of these waiting periods is to see if you will survive this period. If you don’t, you will not receive your benefit, even though you would have received it in full had you passed away after the waiting period.
The other concern with some traditional product designs is that they can’t differentiate between the requirements of various needs, such as duration or future income growth requirements. They also fail to recognise that people could have different needs at claim stage.
For example, two people, both diagnosed with stage four cancer, could have totally different needs based on their financial requirements, prognosis and life expectancy at acclaims stage. Only BrightRock offers you the ability to either receive your future income payouts as a once-off lump sum or as a regular income. If your life expectancy is poor, the lump sum will offer you far more value. If you believe you will recover and have an unchanged life expectancy, then you can choose the certainty of a guaranteed income to retirement, growing every year.
As part of BrightRock’s unique Needs-Matched approach to life insurance, we’ve improved the way income your protection needs are covered.
Our product is designed to exactly match your permanent expenses needs. With BrightRock you get the following market-leading features that will ensure your cover is affordable and sustainable:
Claim-stage flexibility: only BrightRock offers you a best-of-both-worlds choice at claim-stage. You can change your initial choice of a lump-sum pay-out to a regular monthly pay-out at claim-stage.
Up to double the cover today: there’s no waste in a BrightRock policy, so every premium rand you spend with us works much harder for you, giving you an average 40% more cover today for the same premium rand.
No general survival period : with BrightRock you will not face a general survival period before qualifying for your capitalised permanent expenses pay-out
We don’t aggregate against active income earned: with BrightRock, you can claim 100% of your pre-claim earnings and your pay-outs won’t be reduced if you recover either.
Speak to your financial adviser for more information. And whatever you do for a living, make the most of it – for life!
As BrightRock reaches a major milestone of cover in force, just three years after launch, here’s what we’re doing to change the rules of the game and help meet your needs for life
Just over three years ago, a bright new star blazed a trail across the landscape of South African insurance. BrightRock, built on the unique premise of insurance that matches your individual needs, in line with the changes at various key stages of your life.
“Love Change!” said BrightRock, inviting the industry and the public to take a bold new look at the way insurance works, and how it can work better for you.
Proof that the message hit home, is the major milestone of more than R100-billion in cover in force achieved by BrightRock this year, confirming its status as an emerging leader in the South African individual risk market.
For Schalk Malan, Executive Director at BrightRock, the driving force behind this exponential growth has been the company’s “needs-matched, client-centric approach” to insurance cover.
“While the South African insurance industry as a whole has remained stagnant over the past year,” says Schalk, “our positive growth trajectory has seen an 89 per cent increase in year-on-year gross premiums billed.”
BrightRock has also paid out more than R125-million in claims since launching in March 2012, reflecting a philosophy of comprehensive and certain cover. Claims certainty is a central principle of BrightRock’s needs-matched approach, says Schalk.
“We are paying claims that traditionally would not have been paid, or been paid at a lower level. We’ve found that our transparency, objectivity and clearly stated criteria have gone a long way to giving clients assurance around exactly how their claim will be assessed and paid.”
The BrightRock philosophy has proved so successful, that other insurers are slowly integrating a client-centric approach into their product offerings.
But as a company built on a love of change, BrightRock keeps on changing, and the blazing of new trails continues with the launch of key product enhancements to the market.
The first of these is the temporary expenses cover, giving policyholders guaranteed pay-outs for 37 conditions. In addition, there is an extensive list of more serious conditions with a much longer specified payment period.
“Clients who do not have permanent expenses cover can now claim one to three months’ cover if they meet our definition, regardless of whether they are booked off work,” explains Schalk.
Next up from BrightRock is the Job Fitness Test, which aims to give clients transparency upfront, and even more certainty at claim stage. When it comes to permanent expenses cover, BrightRock provides cover for more than 100 conditions, regardless of the impact of a client’s injury or illness on their occupation.
The Personal Job Fitness Test enriches this cover by offering an “own specific occupational underpin”, over and above these conditions.
As Schalk explains, occupational underpins have traditionally been subjective, leading to considerable uncertainty for clients. The new Job Fitness Test uses a points-based system to evaluate a client’s ability to do the work that someone in their stated occupation would typically do.
It is made up of a series of physical and cognitive assessments done by independent medical specialists. The assessment criteria are disclosed upfront to ensure transparency, so clients know exactly how their claim will be assessed, explains Malan.
Trauma cover also comes under the spotlight of change, with the development of a groundbreaking product enhancement called the Trauma Impact Quotient, or Trauma IQ assessment. This is a market-first for the insurance industry, with a patent for the product currently pending.
Where clients suffer a trauma or accident that would traditionally be overlooked, BrightRock’s unique Trauma IQ assessment will factor in how severe the impact of the injury is on the client. The assessment examines nine factors that contribute to the financial impact of a traumatic injury. These include the length of time of surgery and the degree of rehabilitation undergone.
“This therefore significantly expands a client’s assessment spectrum and likelihood of payout,” says Schalk.
As these enhancements prove, BrightRock is putting down strong foundations for growth, in an industry where change is vital to life. As Schalk puts it, BrightRock is changing the rules of the game, and the winner, for life, is you!