Category Archives: Insurance

The great South African funeral cover rip-off!

Can someone explain to me why funeral insurance is so expensive? It has got to be one of the biggest rip-offs and forms of institutionalised abuse of South Africans. I did some shopping around online and could find the following quotes for R20000 funeral cover:

Simply – R81pm (but you also have to buy other forms of cover so the minimum premium is closer to R150 pm and includes R50k life cover). Hollard – R104pm, Dotsure – R73pm, Burial Assist – R100, Budget – R102, First for Women – R104, 1lifedirect – R123

Now compare the cost of a funeral policy to a properly underwritten life policy. Using the same information that I used to get the funeral policy quotes, I was able to get a quote for R300000 life cover (which includes funeral cover pay-out of R40k) for under R100pm.

It is clearly very lucrative cover as there are at least 30 providers in SA that I could find…and the vast majority of South Africans are being seriously ripped off by the funeral insurance industry – it is time that the Financial Services Board looked into this…

Simply…too expensive!

I got quite excited about the new insurance start-up, Simply, that I read about on Moneyweb recently https://www.moneyweb.co.za/mybusiness/fintech-start-up-targets-insurance-mass-market/ . Cover in the direct market and for “lower income” earners has been too expensive for too long. They also promise that the application process will be quick and simple. So welcome, Simply!

I spent a bit of time playing around on their website generating some quotes and the problem is that while the process may be simple and quick, they are incredibly expensive when compared to some of the traditional insurance companies (based on the quotes that we did).

Consider the example for one of my employees who has a matric and earns a gross income of ±R8k pm. She currently has a fully underwritten life policy with R520k life cover, R250k critical illness (dread disease) and R280k impairment cover (as well as a funeral benefit) for ±R220 per month.

Similar cover through Simply of R500k life cover, R300k disability and R20k funeral cover (they don’t offer critical illness) will cost her ±R320 pm. That’s substantially more expensive (with fewer benefits) than her existing policy! Simply put, I would not recommend this cover at this stage.

 

 

At Liberty to do what they like?

It seems that Liberty Life have decided that they can do what they like and ignore written instructions from their clients. They appear to have adopted a policy of sending policy information requested by a non-servicing advisor, on behalf of a client and with the client’s written consent, to the client and not to the advisor who requests it.

This is NOT what the client has requested? How can they get away with this?

It also makes the work of the financial planner so much more difficult to do (and adds to the cost of servicing the client). I’m prepared to venture that this is not in the spirit of TCF!
If Liberty are worried about advisors obtaining information fraudulently then perhaps they need to look at the quality of the average advisor with whom they are doing business and not upset their existing client base either.
Rather than retaining the business, this kind of attitude goes a long way in encouraging clients and advisors to move business away from Liberty Life.

 

 

 

The real advantage of knowing…

Liberty Life is currently running a radio ad about their income replacement product. Income replacement is an essential part of managing your financial risk and for any self-employed person it is almost essential cover. However, not all income replacement cover is created equal and it is essential that before you buy this kind of cover that you make sure that read the fine print and find out what is and what is not covered. In other words, what exclusions and restrictions are there on the cover?
I had heard a rumour about the Liberty Income replacement product not covering depression so I set about to try and find out if this is true or not.
It is quite difficult to get the information when you don’t have a contract with a company but I did manage to find a PDF* document online that details the exclusions on their product…and here it is…no “mental health or musculoskeletal conditions for the first 2 years of eligibility”.
Not 100% sure what that means but I would make sure that I get an answer (in writing) from Liberty before I sign anything. I have written to Liberty to find out more and will update this if/when they reply.
You need to find out before you sign the application form – it is too late to find this out at claim stage. Now that’s the real advantage of knowing!

 

 

*Pdf document accessed here: https://www.google.co.za/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0ahUKEwi9ooTnsZTUAhXjD8AKHSjoD3EQFgg6MAA&url=http%3A%2F%2Fwww.liberty.co.za%2FDocuments%2Fincome-protection-plan.pdf&usg=AFQjCNHS-AnnkIIH6y3NOSG5Eg1dszu5qA&sig2=5G_HjJi32FmwITAbCGKcvg

Stop wasting money…

If you have a bond on your property, please make sure that you are not paying the home owners’ insurance premium via your bond account. The banks are very quick to set this up for you because it is good for them as the premium will never be rejected but the reality is that you will end up paying interest on this premium for the full term of the bond. This could result in you paying thousands extra – what a waste of money.
Rather, make sure that the premium comes off your normal current or savings account. You would also be wise to get a comparative quote from your short-term insurance provider. The banks are notoriously uncompetitive when it comes to this kind of insurance and while you are required by the bank to have Home Owners’ Insurance, you are not compelled to take it out through the bank providing the bond.

You should be ashamed of yourselves, Liberty Life

I just came across a client who has been sold a decreasing life annuity by someone representing Liberty Life. Yes, I know that there is no such thing (officially) as a decreasing life annuity (no one would buy it if there was) but this is effectively what a non-escalating life annuity is. You have condemned the client to future poverty!

While the initial income may look more attractive, in 20 years time (the guarantee period on the annuity for a 65 year old with stage 3 cancer and no financial dependents?) she will be getting an income which will be less than 1/2 of what she should be getting if there was an inflation linked escalation.

This is the kind of product and advice that gives our industry a bad name. If the insurance companies and ASISA wont act then perhaps it is time that the regulators banned this kind of product.

Is there anyone out there at Old Mutual, Liberty and Sanlam?

One of the frequent tasks we face for clients is something known as a Section 14 transfer – this involves moving a retirement annuity (or preservation fund) from one company to another. Typically this would be from an insurance company to a unit trust company. Reasons for clients wanting to do this are many, such as:

  • No/limited transparency from the insurance companies with respect to costs and performance of their investments. Many investors suspect that the fees are high and performance is poor but they are horrified when they find out the actual figures. The high fees are not limited to the “old generation” RA’s – there are many “new generation” products with very high annual fees! Investors should stay away from any investment via an insurance company…there are better options elsewhere – let the insurers focus on insurance!
  • No/limited flexibility when it comes to making changes to the contribution amount or term and did we mention the penalties that are frequently applied to anyone wanting to move their funds? This is a legacy to an archaic pricing model. People’s circumstances change, often through no fault of theirs and to penalise someone who can no longer afford to pay a premium as a result of being retrenched or being forced to join a work pension fund is immoral and a bad business practice. There are better ways to do business!

So, to any of the insurers out there, here is the message from consumers. There is something fundamentally wrong with the business model when the S14 dept is “understaffed and backlogged” to quote one of the employees. The longer you take to action S14 transfers (180 days is the “legal max and many of you are abusing this) the more the reputation of your company is damaged. This applies to all the insurers – you may think you are keeping the funds for longer and making it difficult for people to transfer and that as a result they might eventually give up in frustration, but the reality is that in the process you are losing clients forever.

Address the issues that are leading to so many clients wanting to move – and it’s not advisors chasing commissions! Rather, it is a fatally flawed business model that is constantly dependent on new business to survive.

Fear of dying

As human beings, emotions often dictate our behaviour. One of our dominating emotions (if we are honest with ourselves) is fear. Fear of loss, fear of being hurt, fear of being poor, fear of missing out, fear of being sick, fear of clowns, fear of needles…and probably most significantly, for most of us; the fear of dying too soon.

One of the “problems” of dying too soon is that we are often unprepared for the event which means that those left behind could be left up the creek without a boat (never mind the paddle) if our affairs are not in order.

A good starting point to prevent this happening is to make sure that you have a valid will in place and that someone else knows where the original is kept. Drawing up a will is a relatively simple (and completely painless) process – no needles will be used.

But this is where our emotions get in the way – we have the mistaken belief that somehow if we draw up a will we are increasing the likelihood of our demise. The truth is that we are all going to die one day – drawing up a will is a responsible and thoughtful thing to do – it does NOT increase the chance of you dying! If you have dependents and don’t have a will then you are being incredibly stupid and very selfish too.

Stop putting it off – get it done today!

 

 

 

To pay a penalty or not?

A client of mine presented a potential dilemma to me. He has a living annuity through Liberty Life but also has the bulk of his living annuity funds on a LISP platform. He was wanting to move the Liberty one to the LISP and consolidate his investments on one platform*.
Under normal circumstances there should be no penalty when transferring living annuities. However, in the fine print, Liberty had noted that there would be an exit penalty if the annuity was transferred anywhere else within the first 5 years of the investment. As such he was advised that he was going to pay a penalty of 1.2% (±R6500) to move his annuity and he balked at the prospect.
We told him to find out from Liberty what the total annual fee on his annuity is and it turns out that they are charging him a total of 2.15% pa (admin and fund fee, no advice fee included – the advisor took that maximum upfront fee).
By comparison his living annuity on the LISP has a total annual fee of 1.1% (fund and admin fee, no advice fee). Do the maths – the 1.2% penalty will be covered in the next 12 months and thereafter he will be better off because of the lower annual fee (less than half of the current annual fee and there would still be a penalty to move for the next 24 months).
The real question I have for him is why anyone would ever invest in a product where there is any kind of exit penalty? There is no need to ever pay penalties when it comes to investing – there are far better (and cheaper) products out there than those offered by the life insurance companies. Stay away from them unless it is insurance you need!

*Note: he pays us directly for advice and there are no on-going advice fees on his investments so the advice we give to him is not affected by the desire to grow assets on which we earn fees.

“Dinosaurs R us?”

I was at a workshop session recently where the following quote was mentioned “Finance will be the most disrupted industry in the next 10 years”. The quote was attributed to Peter Diamandis, the executive chairman and co-founder of Singularity University. That’s my industry – sure, there’s a lot that needs disrupting but it’s really got me thinking.

An example that was given was of short term insurance company, lemonade.com. They have 3 “mantras”

  • A flat fee for all transactions
  • Bonuses are paid but to a charity of your choice (they figured that if they paid out cash then people were more likely to leave and go elsewhere once they got the bonus)
  • They pay claims – quickly.

In fact they pay claims so quickly that they recently tried to enter themselves into the Guinness Book of Records for the quickest payment of a claim: 3 seconds from claim submission to funds appearing in the client’s bank account. https://blog.lemonade.com/2017/01/01/lemonade-sets-new-world-record/

Now that’s seriously disruptive