20 Augustus 2019
Petrie Marx, Product Development Actuary at Sanlam Personal Finance, says these types of products are focused on an individual’s entire life versus more traditional products which were, typically, aimed at covering someone for a certain limited period of time.
“Life expectancy has increased by 20 years since the 1950s, largely due to advances in medicine, better nutrition, improved public health systems and technology breakthroughs. Longevity emerges as a key factor in
Sanlam’s Benchmark Retirement Survey year after year – individuals planning their
retirement today actually face a very different context than they had anticipated. ‘Time in retirement’ has extended from the current 15 to 20 years in retirement to 25 to 30 years or even longer,” Marx says.
He says the only way for retirement savers to accommodate this increasing longevity scenario is to accumulate more capital for retirement, or retire later. “But equally important is ensuring that you have enough insurance risk cover for uncontrollable events which could impact your financial situation – after you retire.”
Traditionally, the only risk cover which covered the whole of life was
life insurance. Products such as dread disease, disability and
income protection were usually ‘term policies’ – cover typically ended after a certain term, often retirement. However, over the past few years, insurance companies have developed risk products for the whole of life – providing cover for unforeseen events, both before and after retirement. They remain in force for an individual’s entire lifetime, provided the premiums are paid.
With the newest products, individuals can choose either a term policy (which provides cover up to the age of 65) or a policy for the whole of life, which will pay out a lump sum if you suffer from a defined list of diseases. “You can therefore benefit from this product throughout your working life, seamlessly continuing into retirement – as opposed to a frail care insurance product which may only benefit you sometime in the future,” Marx says.
These policies include whole life cover for a defined list of physical impairments – such as loss of function or amputation of limbs, permanent confinement to a bed or wheelchair, vision and hearing loss, or a hip, knee, shoulder or ankle replacement.
In the past,
disability policies covered an individual up to the age of 65, whereas the industry standard is now 70. In addition, clients are now offered physical impairment cover for the whole of life. “This type of combined benefit is geared toward protecting individuals in their later years against impairments or events that can seriously impact their lifestyle, even when they are retired,” says Marx.
These policies typically provide occupational cover up to the age of 70, and thereafter provide protection against living with a functional impairment in retirement. “Suffering from a functional impairment in retirement will put strain on your pension income and is therefore also an insurable event. It will pay out a monthly amount.”
Marx says risk insurance products covering the whole of life are slightly more expensive than term products. “However, if you start investing in these products when you are young, the price difference is almost negligible and the benefits are available at any stage of your life, both before and after retirement.
“It is also important to note that a whole life insurance policy is not a retirement plan. You still need to save to ensure you can afford an annuity appropriate to your financial needs. Instead, these products insure the factors that may unexpectedly put pressure on your monthly pension, giving you extra peace of mind.”
Marx says the need for a proper financial analysis and plan remains crucial. “A professional
financial adviser will be able to take into account all your financial needs, and advise you on the best combination of insurance cover for each stage of life.”