Have you adequately protected your client’s most important asset?

You cannot answer the question until you determine what this asset is! The temptation is to consider the ‘big ticket’ items: house – retirement fund – business premises – discretionary savings etc. But the real asset in your client’s hands is his/her ability to earn an income. Individuals and small business owners need consistent monthly cash flows to fund ongoing savings and expenditure commitments.

The question then becomes how to protect your small business client from loss of income in the event of illness or disability! Financial advisers have traditionally sold capital or lump-sum disability policies as a ‘cover all’ for disability or impairment, leaving policyholders to stretch their ‘once off’ benefit to compensate for a lifetime of lost income. This is particularly difficult if the disability occurs early in your client’s working life.

Lump sum policies have other drawbacks too. “Capital disability is not going to pay out anything unless you are totally disabled – and it pays nothing in the first six months,” observes Maarten van de Vijver, Head of National Financial Adviser Distribution at FMI. The ideal solution is to sell your client a mix of cover: lump sum disability to take care of immediate needs and income protection for ongoing peace of mind. “Income protection shouldn’t replace capital disability – and vice versa – these products compliment each other very well,” he says. You have countless opportunities to sell each of these covers.

Absa Financial Services suggest only 6% of South African life insurance consumers have insured against loss of earnings, while Discovery Life says the majority of its disability policies favour lump sum disability (70 to 80% of policyholders) over income protection (15%). Your challenge is to plug this gap by making sure your client is adequately protected in the event of short-term illness and partial disability. Statistics from FMI – leaders in income protection products – show why.

Last year 77% of FMI’s Temporary Income Protector (TIP) claims were illness related (rather than disability), lasting an average 82 days. If your client only had lump sum disability cover they wouldn’t have received a cent, with devastating consequences. FMI offers a range of income protection solutions to small business owners under their Business Person Elect (BPE) policy. TIP offers financial security in the event your client is unable to perform ‘duties of own occupation’ for up to 24 months, while Permanent Income Protector (PIP) dovetails with TIP for uninterrupted income protection cover up until a selected retirement age. Another FMI innovation is the Business Overhead Protector (BOP) to cover a pre-approved list of business expenses during the incapacitation of the owner.

"FMI handles claims on your client’s inability to work rather than loss of income," says Van de Vijver, and the product pays benefits regardless of any other income your client might receive. The FMI product also offers waiver of premium whilst in claim, a 5-year rate guarantee, and an amount of R250/day towards a driver in the event your client is unable to drive. Premium contributions for income protection may be tax deductible too.

   

This month FMI undertook research on the small business sector to better understand their insurance needs. Below are some findings that we thought you would be interested in:

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    		•  Only 31.8% of all respondents had income protection cover, coupled with other long term insurance products.
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    		•  An astounding 7.87% of all respondees had no long term insurance.
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    		•  Of the 31.8% of the respondents who had income protection cover, 41.27% choose to purchase Income Protection cover based on the advice of their Financial Adviser.
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    		•  61.05% of all respondents went through their own independent Financial Adviser to purchase long term insurance.
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    		•  40.98% of respondents are in regular contact with their Financial Adviser.
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    		•  22.42% don't have a Financial Adviser.
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    		•  Less than half of all respondents, 42.48%, knew that Income Protection was monthly disability cover.

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    		•  66.43% of the respondents would consider taking income protection cover in the future, if they don’t have it already.
    From these statistics we can see that it is important to maintain the relationship between Financial Adviser and client. The lack of understanding of income protection and the necessity thereof coupled with the low take up rate indicates a massive market of opportunity within the small business sector.

    		 
     
       

    This year FMI will be taking part in the FPI 2010 Expo at Emperor’s Palace on the 25th-27th May. Come visit our team at stand number 51 and see why we remain the Leaders in Income Protection.


    For more information,
    please visit www.fmi.co.za, call FMI’s Financial Adviser Distribution team on 0860 10 52 08 or email sales@fmi.co.za.
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