Three things every Early Earner needs to know

BRAD TOERIEN, FMI CEO

Income earners under the age of 30 are dangerously underinsured with only 35% of the disability cover they need1. And of this cover in place, 75% is lump sum benefits (rather than income), that will only protect an individual for permanent disabilities2. Yet the risk of a temporary injury or illness is much higher, leaving Early Earners exposed. We have a responsibility, as an industry, to set this straight.

So, who are Early Earners? We define them as those individuals who are just starting out, and who have not yet bought a home nor have any dependents. Their greatest need is to protect their monthly income from the financial impact of an injury or illness. This is the time of their lives when their trajectory for future earnings is at its highest. Therefore, protecting your young clients’ ability to earn an income should be the foundation of any financial plan.

We understand that you may receive some resistance from this particular market. They are skeptical of the insurance industry, wary of advisers’ motives and as a result, seek to make their own decisions rather than follow the conventional route. Compounding the challenge is the perception that life insurance is death cover, so Early Earners don’t see the need for such a product without dependents. And they believe they’re invincible and can’t imagine they’ll ever be too sick to work.

On the flip side, financial stability and freedom are important to them. They’re paranoid about the debt trap. And contrary to popular belief, they’re better at saving than their parents were at their age.

There are three simple things every Early Earner needs to know to help them secure their future income the minute they get that first pay cheque.

1 The value of their future income

By using FMI’s Future Income Calculator (available on our website), you can quickly and easily calculate an individual’s specific future earnings. And it will surprise them! Take 25-year olds earning R15 000 a month as an example. They will earn a staggering R38.3m over their working lifetime3. This is what they need to protect.

2 Their risk reality

A 25-year old has a 96% chance of experiencing a temporary injury or illness that will stop them from working for more than two weeks during their working career. By comparison, they would only have a 14% chance of a permanent disability and only a 9% chance of death during their working career4. Traditional lump sum benefits will not protect an Early Earner from their most likely risk of a temporary injury or illness, so the best approach would be to ensure they have temporary and long-term income cover to make sure they’re protected in such an event.

3 The financial impact of an interruption in earnings

In our 2018 #RealityCheck consumer survey, 62% of respondents said they’d run out of money in three months, which means even a temporary interruption can have long-term consequences. Early Earners don’t think twice about insuring their car and cellphone, but few consider protecting the income that makes this all possible. It’s important to point out that it’s their income that enables their lifestyle and future dreams, and it is core to their financial future. In today’s economy, it’s vital that Early Earners are made aware of their risks and do more to protect their income.

If Early Earners understood the value of their future income; the high probability of experiencing a temporary injury or illness; and the financial impact of an interruption in earnings, they’d want to protect their INCOME FIRST.

1 ASISA Gap study

2 FMI’s 2018 Disability Cover study

3 FMI Future Income Calculator. 6% nominal growth, retirement age of 70.

4 FMI Risk Stats 2019. Probability based on temporary disability lasting longer than 2 weeks during working career up to retirement age of 70.