Income protection: The best of both worlds

GEORGE KOLBE, Head: Momentum Life Insurance Marketing

Just as a monthly income gives clients a feeling of control and certainty that they are in a position to fund their lifestyle and manage their expenses, so too must income protection provide clients with certainty that their monthly income is protected and will continue when disaster strikes. Momentum Myriad’s new Complete Income Protector Benefit delivers on these requirements in the most concrete way possible.

The goal of income protection is to ensure your clients continue to receive a monthly income should they become temporarily or permanently disabled; with the objective that their financial position remains the same before and after an event.

The Complete Income Protector Benefit creates the opportunity to combine the best features of income disability and lump sum disability in a unique industry-first solution. For clients who require a long-term disability income, this benefit provides peace of mind that they will continue to receive a monthly income when they can no longer perform their occupation due to a temporary or permanent disability, or suffer from a defined illness or impairment. This benefit is ideally suited for clients who earn a salary, commission or fees, and who do not have a group income protection benefit.

Permanent Disability Enhancer Benefit

Myriad adds another layer to income protection that will provide your clients with even more income certainty by introducing the Permanent Disability Enhancer Benefit, as an optional rider benefit, that can be added to the Complete Income Protector Benefit.

THE GOAL OF INCOME PROTECTION IS TO ENSURE YOUR CLIENTS CONTINUE TO RECEIVE A MONTHLY INCOME SHOULD THEY BECOME TEMPORARILY OR PERMANENTLY DISABLED

This rider benefit was designed to provide the best features of both income disability and lump sum disability at an affordable price. When selecting this rider benefit, a client has the flexibility to commute a part, or all, of their future monthly income protection pay-outs to a lump sum payout whenever they choose to, once a permanent disability claim is assessed and approved.

One size does not fit all

Current market choices allow your clients to only choose between two extreme options when it comes to protecting their income, in the event of a disability. They can choose an affordable income protection benefit that indemnifies them against a loss of income, or a lump sum disability benefit that provides a capital pay-out in the event of disability. Both have certain advantages and drawbacks.

With income protection benefits, pay-outs will continue for as long as your clients are disabled and will cease at the selected benefit expiry date or in the event of their early death. However, this indemnity approach does come with some sense of unfairness.

Imagine a scenario where two clients paid the same premium and qualified under the same claims criteria. It is often considered unfair that a client who is terminally ill and passes away a year after becoming disabled only received pay-outs for a period of 12 months, while a client who is unable to work due to a musculoskeletal injury receives payouts until the benefit expiry date, which might be many years after the disability event.

Alternatively, clients can select a lump sum disability benefit that provides a full capital pay-out in the event of disability. Fairness is achieved as there is no link between the likely life expectancy and the payout. This benefit is typically more expensive compared to a monthly income benefit, as the cover typically increases as your clients approach retirement.

The capital that is needed to provide an income until retirement age typically reduces as your clients near retirement age, so potentially less cover is required. A further challenge with this scenario includes your clients taking the risk of managing the investment and drawdown of capital responsibly to ensure that the capital lasts long enough. Also, when lump sum benefits are selected, your clients’ financial planning must include adequate cover for an extended period, and this requires detailed financial analysis.

Reinventing income protection

With Momentum Myriad’s new Permanent Disability Enhancer, available as a rider benefit to all our Complete Income Protector Benefits, your clients can now get the best features of both an income protection and a lump sum disability benefit at an affordable, extra cost. By adding this rider benefit to your clients’ Complete Income Protector Benefits, they will have the following choices when it is determined that they are permanently disabled:

• Option 1: Your clients can select to receive the regular income up to their benefit expiry date. However, should your clients pass away before the benefit expiry date, we will convert the outstanding monthly pay-outs to a lump sum and pay it to their beneficiaries, or into their estate. Alternatively, because your clients are able to convert to a lump sum at any stage after a successful claim, they will also have the opportunity to convert a portion, or all, of the income into a lump sum amount at any stage prior to their death.

• Option 2: Your clients have the option to convert the full, or part of, their future income protection pay-outs into a lump sum pay-out. In addition, your clients can exercise this option at claims stage or any time thereafter. They can even exercise the option multiple times, for as long as they have not yet converted 100% of their future disability income.

Truly the best of both

This new solution empowers clients to insure themselves against a loss of income, with the claim certainty of having access to a regular income payout with no exposure to investment risk, and with the comfort that pay-outs are guaranteed until the selected benefit expiry date. Also, if a client qualifies to commute their income to a lump sum pay-out but decides to rather receive a monthly pay-out, the monthly pay-out will not be subject to any financial reassessment against active income or other income disability benefit pay-outs.

Clients’ financial needs can change in a heartbeat, especially if they become disabled. When the Complete Income Protector Benefit is combined with the Permanent Disability Enhancer rider benefit, your clients have the ultimate flexibility in choice when replacing their income, as it combines the best features of income disability and lump sum disability. They will have the advantage of cover for temporary and partial disability that is not provided by lump sum benefits, while also having the option of lump sum pay-outs if they qualify for a claim on the Permanent Disability Enhancer Benefit criteria – something that is not normally available on income protection benefits.