Sophisticated insurance does not have to mean it is complicated

SA is seen as tops for life insurance innovation and BrightRock’s flexibility fits the bill, writes Stephen Cranston.

Product complexity in insurance is one thing and it was what made the old universal life policies so confusing. It was hard to work out if these multiheaded hybrids of protection and savings were good value for money.

But there is also product sophistication, when highly customised technology can add something new and desirable to the product range.

BrightRock falls in the sophisticated rather than the complex bucket. This insurer was formed in 2011, at a time when there was a race to the bottom as plutocrats such as Douw Steyn turned life cover into a commodity.

BrightRock was founded by a multidisciplinary team, some of whom wanted another challenge after the big company atmosphere at Discovery. No company in the world runs its policies in the same way as BrightRock. As CEO Schalk Malan puts it, it is a needs-matched approach.

A traditional life policy combines all cover in a single capitalised lump sum, which might be fixed or grow at a set rate over time. The trouble is that some financial needs exist only for a few years, others last a lifetime. So why should you pay for cover you don’t actually need?

You might have heard of BrightRock from its sponsorship of the Stormers as well as from some chat shows it sponsors on SuperSport and kykNET. But you won’t see it much on peak-time conventional advertising slots. I sometimes think Willem Roos of OUTsurance has bought all the slots there and sells them on to competitors when he is feeling generous.

Anyway, BrightRock quite rightly doesn’t believe its product set is appropriate for direct sales. It is sold through 3 800 accredited financial advisers, who gathered R6100m in premium income in 2016.

BrightRock’s key selling point is that it strips out wasted cover to deliver premium savings. And you never lose the value of your savings: when needs fall away you move your premium to buy more cover for a different need, say from death to disability. And if the client needs more cover, he can reserve future years and take it up when needed.

A feature that impresses me is the ability to make a choice on how to take on disability or critical illness cover at claims stage. It is hard to know at the inception of a policy whether a guaranteed income or a lump sum is more important. Expected longevity and severity of the condition need to be taken into account.

At BrightRock, the client does not have to choose upfront but can decide if income, a lump sum or a combination of both is the right approach.

BrightRock provides a graphic with six kinds of needs ranging from household needs, which are likely to grow at least at the rate of inflation, to healthcare, which tends to grow ahead of inflation, as would unpredictable costs of illness or injury and death-related needs such as estate duty and bequests.

In contrast, debt – such as bond and car payments and personal loans – should eventually come to an end, as should childcare costs. Each of these financial goals is provided for by a distinct tranche of the policy, each of which has its own termination date and is disclosed in the written updates.

I was interested to see that SA is seen as the most innovative life insurance territory, accounting for 46% of the votes in a recent Munich Re survey. Australia scored a feeble 6%. But in spite of this there is an inefficient pricing structure here and the policies can’t adapt to clients’ changing needs. It is hard for clients to alter their cover in what BrightRock calls critical change moments.

Marketing director Suzanne Stevens points to a real case in which BrightRock proved to be a better option than any of its competitors. A teacher just 38 years old tool out a policy in May 2014 worth R5.5m for disability and dread disease. In September of that year she went into a coma from pneumococcal meningitis and died eight days later. Under the ruling that most life offices follow, if a client dies within 14 days of an “event”, such as a stroke, the policy pays nothing. The only exceptions are Discovery Life, though it would have given less disability cover for the same premium, and Liberty, which would have paid somewhat less than BrightRock for disability and paid nothing on dread disease. But life offices such as Old Mutual, Momentum and Sanlam would have paid absolutely nothing. Is that treating customers fairly?

Karl Leinberger, the chief investment officer of Coronation, seems quite defensive on the topic of long-term investment. I am not sure why, as the Coronation Equity Fund in its 20-year existence has added 60% to the all share index return. Some people see talking long-term as a way to buy time in a poor year such as Coronation experienced in 2015. And quite a lot of mediocre fund managers do ask clients to wait for the long term even though they are doing badly.

Leinberger has probably added as much value from the shares he hasn’t picked than from the shares he has. He showed a slide from the 2008 road show in which he explained why he did not own Murray & Roberts, then seen as bulletproof because the infrastructure boom around the Fifa World Cup was in full swing. The share has since gone from R110 to R11. Leinberger says that in a time of lower returns it makes even more sense to invest with an active manager.

Of course he would say that, but it seems fair enough to argue that skill becomes more valuable in challenging times. In fact good managers often do more alpha (excess return) in weak markets than in bull markets. Just look at Allan Gray, which routinely adds almost all its alpha in bad markets.

I am a strong believer in giving fund managers a balanced mandate instead of trying to juggle the whole range of different asset-class building blocks in a fund. Leinberger makes the point that a balanced manager can make asset allocation decisions in real time – no need to wait for approval at the next trustee meeting. The manager needs to understand the total portfolio, the rand hedge position across asset classes on a see-through basis, the total interest rate holdings and the total inflation hedge.

* This article first appeared in the Business Day of 10 February 2017. Click here to read the original version.

Rocking Change

In a mere five years, BrightRock has managed to carve out a strong position for itself in the fiercely competitive insurance industry. How has the company so successfully taken on powerful and entrenched competitors? By GG van Rooyen 

EntrepMagCover_POSTED

  • COMPANY: BrightRock
  • PLAYERS: Leopold Malan, Suzanne Stevens, Schalk Malan and Sean Hanlon
  • ESTABLISHED: 2011
  • ANNUALISED PREMIUM INCOME (API): R595 million
  • VISIT: www.brightrock.co.za

The South African insurance sector didn’t perform particularly well during the 2015/2016 financial year. In fact, the industry posted below-inflation growth of around 4.5%. Compare this to the year-on-year growth that BrightRock enjoyed over the same period – a staggering 72% – and you realise that the founders of the company have accomplished something very impressive. BrightRock has established itself in an industry that is capital intensive and dominated by entrenched players. How have the four company founders managed this?

Changing the game

Sectors such as financial services and insurance can seem impossible to upend, expecially when you take a moment to consider the obstacles. There are powerful players who have been playing the game for a long time, and you are dealing with potential clients who often don’t even really understand what they’re buying into. Products can be complex, so educating people on how your offering is different isn’t always easy.

“It’s often said that the insurance industry is quite innovative, but when you really look at it, you realise that policies have been looking pretty much the same for a long time now,” says BrightRock co-founder  and executive director of distribution Sean Hanlon. “All four of us had been in the industry for a long time, and we realised that things could be done very differently. There was a market for a different kind of policy.”

Leopold Malan, executive director of processing adds: “When we started BrightRock, we wanted to bring about change in the industry by providing cover that is both relevant and appropriate to each and every individual client, and continues to match the needs of clients as their lives change. Four years after our market entry, we are pleased to see the subtantial take-up of our need-matched product offering. The flexible design in our cover also allows for us to provide up to 48% more cover for the same premium, allowing greater affordability initially and over the long term.

“In our first year, 47% to 53% of our policyholders wanted traditional, lump-sum cover. However, an overwhelming 71% of our policyholders now opt for needs-matched insurance through product options that allow them to shift their cover as their needs change.”

BrightRock entered into a saturated market, but it approached the industry in a unique way. In a sense, it created its own playing field.

This is a good example of how a traditional industry can be disrupted. Moreover, it shows that disruption need not necessarily be driven by technology. Disruption can be created just by tweaking exisitng offerings. A new company like BrightRock doesn’t have a massive legacy and loads of exisiting clients that so often lock a large business into its existing model. The important thing, though, is to take advantage of this freedom – to not simply fall into existing patterns of doing business. Starting a new company offers a unique opportunity to reassess the way in which things are done, and to change it.

Educating the client

Whenever you offer a completely new way of doing things, prospective clients need to be educated and shown why “new” is in fact also “better”.

As mentioned, it took a while for BrightRock clients to adjust to the company’s new offering. So how did BrightRock manage to change clients’ minds?

Well, the company was savvy in the way in which it marketed itself. Right from the start, it realised the need to create clever marketing content that explained its offering.

“Bringing a new brand with a new way of doing things to the market isn’t easy,” says Suzanne Stevens, executive director of marketing. “Educating the consumer is a tough task, and we knew that we couldn’t outspend our competition. To address the issue, we designed a marketing model that started with a content-based approach on platforms we could own. For example, we built a green-screen studio in-house and partnered with journalist Ruda Landman to create videos that explored the change moments in people’s lives. This was a good way to look at insurance in a personal way – to make the implications of insurance real, and to show how life changes dictated insurance needs.”

The campaign  was so successful, that BrightRock eventually sold the idea to kykNET as a show called VeranderDinge.

BrightRock also made the decision to try to do away with much of the jargon and complexity often associated with insurance policies.

“We made sure that all materials were simple and easy to understand,” says Stevens. “We also endeavoured to make the claims process as hassle-free as possible and to allow a client to speak to a human being whenever they wanted. In the end, it all came down to empowering the client to have a meaningful conversation – to understand our offering and ask pertinent questions.”

When it came to selling its policies, BrightRock decided to go with independent brokers who sold various policies.

“We wanted our offering to prove itself,” says Schalk Malan, actuarial executive director. “We wanted experts in the industry to be able to compare our offering with those of others, and let it speak for itself. We were confident that we had a product that could stand on its own and benefit from comparison.”

Growing successfully

Key to the success of BrightRock has been its ability to scale successfully. It is something many companies struggle with, since quick growth leads to increased complexity. Managing this complexity is key.

“There are great advantages to being a new-start-up,” says Hanlon. “When you’re small, you can react quickly. As you grow, though, this becomes harder. With this in mind, we made the decision to put systems in place early on. And having spent time on it from the beginning, we were able to grow quickly.”

“We focused on creating a simple platform that was accessible enough to be used both internally and externally. It was all about stripping out unnecessary complexity, since this would slow down the on-boarding process, both in terms of new clients and new employees,” says Stevens.

Leopold Malan is quick to add, however, that systems and processes can only take a start-up so far. “It takes a good five to ten years to thoroughly implement the systems and processes needed. It is not a simple task. This means that, during the first few years of doing business, your systems will let you down. And when this happens, you need good people in place who can take up the slack.”

BrightRock’s founders have been careful to place the A-players and experienced managers needed to manage growth.

“When it comes to scaling, you’ll often find that it’s the human capital element that limits growth. You can grow your client base quickly, but you need good people who can actually manage the workload. Getting new clients is great, but you need to be able to retain them,” says Hanlon.

KEY LEARNINGS

  • Don’t be drawn into doing things the way the industry has always done them. A new company has the power to do things differently.
  • Educating consumers in a clever way is crucial when bringing a unique offering to market.
  • Systems and processes are important, but try to stay as agile as possible. Don’t let red tape throttle growth.
  • Have the right people in place who can help you keep growing, even when your processes let you down.

This article was originally published in the November 2016 edition of Entrepreneur magazine.

Life cover isn’t only for the healthy

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

PersonalFinance

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.

If the risk factors for developing a disease are present, or you have had a serious illness, such as cancer, your case – known as a non-standard life – will be individually assessed to determine the benefits you can be offered and at what rates.
An assurer has several options if you are a non-standard life, Schalk Malan, the executive director of actuarial at BrightRock, says. These include premium loadings and excluding certain activities, health conditions and benefits from being covered.

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.

Exclusions

“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.

  • This article was originally published in Independent Newspapers and IOL.co.za on Saturday, 1 October 2016. Click here to view the original version.

Life Works!

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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!

This article first appeared in The Comet, an online platform by BrightRock, provider of the first-ever life insurance that changes as your life changes.

Kyk Weer! VeranderDinge is Back to Change Your Life

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Brought to you by BrightRock, the popular TV magazine show returns for a second season on KykNET

“Verander dinge”. In Afrikaans, it’s a call to action, meaning: change things. But it’s also a sly play on words, because vir ander dinge, which sounds exactly the same, means: for other things.

Put the two together, and you have the perfect name for a TV lifestyle magazine series that showcases a miscellany of lively, upbeat, and interesting items, while shining the spotlight on change.

Sponsored by BrightRock, as a platform for sharing the joys, challenges, and opportunities of change, and highlighting the positive role it can play in our lives, VeranderDinge is back on kykNET for an action-packed second season.

And the great news is a change in scheduling, to the prime-time slot of 6.30pm on Sundays.

With the dynamic duo of Ruda Landman and Kim Cloete at the helm, VeranderDinge puts the focus on in-depth, insightful interviews with prominent and influential South Africans, from Cape Town Mayor Patricia de Lille to songstress Sonja Herholdt, and from bubbly model and television presenter Minki van der Westhuizen to the astute political commentator, Max du Preez.

Then, of course, there are the ander dinge –  the other things – a potpourri of information, inspiration, and entertainment, featuring profiles on extraordinary people (arm-wrestlers, cage-divers, brewmasters and more) and useful advice on everything from starting your own business to organising the best party ever for your children.

Either way, it’s all about change and loving it, so change the channel to kykNET and make the most of your Sunday with Ruda, Kim, and company.

“We are excited to once again place change under the magnifying glass with Ruda and Kim,” says Suzanne Stevens, executive director at BrightRock. “VeranderDinge matches up perfectly with BrightRock’s needs-matched approach to life cover, and it’s a privilege to enter a second season with this multi-faceted show.”

*Tune in to VeranderDinge at 6.30pm on Sundays on kykNET, channel 144 on dsTV.

This article first appeared in The Comet, an online platform by BrightRock, provider of the first-ever life insurance that changes as your life changes.

 

Avoid that credit score downgrade

24 October 2014. iAfrica.com.

Schalk Malan, executive director of BrightRock, shares some tips to help you avoid a downgrade in your own financial rating.

The recent decision by Moody’s Investors Service to downgrade the credit rating of South Africa’s four biggest banks, has once again brought that ugliest of four-letter words – “debt” – to everyone’s lips. The decision to downgrade Absa, Firstrand, Nedbank and Standard Bank came shortly after the collapse of African Bank, the largest provider of unsecured loans in South Africa.

This has raised the question whether consumer lending is getting out of hand, and banks are under increasing pressure to scrutinise credit records and reduce the amount of money they lend to consumers.

A sound credit record will be helpful when it really matters – like when you would like to buy a house. Achieving this will be impossible if you don’t have a squeaky clean credit history.

Check your credit score

Knowledge is power. Don’t be taken by surprise with a financial consultant or future employer flagging your credit score – check it yourself. All South Africans are entitled to obtain information on their credit scores for free once a year. You can do this through a variety of online services or ask your financial adviser for assistance.

Pay your bills on time

Credit cards, retail accounts, instalment loan accounts and vehicle and bond repayments are all forms of debt that influence your credit record. The more you miss your repayments, the stronger the likelihood that your credit record will reflect this. If you can’t pay your bills on time, negotiate new payment deadlines with your bank or creditors – they might be more understanding than you think.

Put a cap on your debt

Whilst owing a substantial amount of money may not necessarily affect your credit score, it might deter institutions from granting you any further credit as they might feel you are too far in the red. You need to make an obvious effort to show that you are managing your debt, and this can be done by budgeting and making the necessary cuts in your expenses.

The earlier you start, the better

As a rule of thumb, your credit score is affected by the length of your credit history. Consider applying for a loan or a credit card if you’ve never had any debt before. We’re not saying pile on loads of debt, but create a footprint of good debt management that will give financial institutions reasons to loan you more funds when you really need it.

Don’t try to cheat the system

Opening and closing credit and retail accounts on a regular basis won’t improve your credit score. Nor will paying old debt with new debt. If you’re not happy with your credit score, focus on existing accounts or institutions affecting it by ensuring you meet the required payment deadlines and honouring your debt in full.

* Written by BrightRock exeuctive director Schalk Malan.

** First published in iAfrica.com

 

 

Using life insurance to leave a legacy

1 June 2014. By Maya Fisher-French.

One way to kick-start intergenerational wealth is through the use of a life policy, writes Maya Fisher-French.

What parent in the world would not like to leave a family legacy to help educate the future generations, help their offspring buy a house, start a business or create an investment for wealth creation in the family?

Craig Gradidge of Gradidge Mahura Investments says this is a very desirable financial goal among his clients, especially for many black families who are only starting asset accumulation. One way to kick-start intergenerational wealth is through the use of a life policy.

“As a parent myself, I certainly do not want my kids to walk the path I did. All the hard work and sacrifices that I made were with the aim of creating a better life for my children and my children’s children.

“However, for most, building wealth takes time, especially if you are working for an employer. And an unexpected death could derail those ambitions and plans in a moment.

“This is where life cover comes to the fore and ensures that the dream lives on,” says Gradidge.

Many parents are aware of the need for life insurance to provide an income for their family should they die – but many cancel these policies once the children leave home. By maintaining that life cover, one could leave an inheritance for future generations.

If one is taking out life cover with the view to maintaining it into retirement, it is very important to ensure you take the correct type of cover so that it remains affordable.

If you have an existing policy, there is also the option to transfer the premiums to one’s children to continue to pay once you retire. They, after all, are the ones who are going to benefit.

Life policy as a retirement fund

The idea of children paying for a parent’s life cover raises another interesting dimension – one that is perhaps more difficult to discuss culturally but certainly something worth considering.

Many South Africans are finding themselves in the “Sandwich Generation”, where they are supporting both their elderly parents and their older children.

This generation of 40- and 50- year-olds is finding it increasingly difficult to provide for their retirement while meeting family obligations such as elderly parents who do not have sufficient retirement savings and children who are studying for longer or who are unable to find work.

Taking out life insurance on a parent who you are supporting is one way to ensure that you break the cycle of the Sandwich Generation so that your children do not have to support you in retirement.

According to Liberty, a R1million life insurance policy for a 70-year-old, female, nonsmoker would cost in the region of R1640 a month. Assuming premium increases of 8.5% a year, she would have paid about R300000 in premiums by the time she is 80 years old.

If you have a parent who already has a life policy in place, one could simply take over the premium payments. If, however, one is taking out a new policy, it is something that would have to be handled very sensitively – you don’t want your parent to think you want them dead.

Gradidge, who supports his mother, has taken out life insurance for her.

“The key decision to insure was based on the fact that certain liabilities and expenses would fall on my brothers and myself in the event of her passing.

“We had a very open and frank discussion before taking out the policy, and she agreed to it and was comfortable with the idea.

“We also pay for her medical cover, so she knows we want her to live for as long as possible,” says Gradidge.

It may be easier to have this discussion in light of leaving a legacy. Through taking out life cover, your parent can ensure the education and financial stability of generations to come.

Originally published in City Press.