Newest of online life assurers offers 'wealth creation' but some cover is costly
A percentage of your premium is invested each month
Recent entrants to the life assurance market have sought to shake it up and address the shortcomings of big players. A new entrant, Indie, is no exception.
Indie is the latest direct life assurer to offer online quotes and applications for cover and joins the likes of 1Life, Instant Life and Frank.net.
Last year, Simply Financial Services, which offers life, disability and funeral benefits for people and small businesses, entered the market, and Investec launched a suite of products tailor-made for the bank's clients on its One Place platform.
It was seven years ago that BrightRock first challenged the status quo with policies designed to adapt to one's changing needs for life and disability cover.
Indie, backed by Sanlam, hopes to corner a share of the competitive life, income protection and severe illness policy space by offering "competitively priced" customised life and disability cover online in under 10 minutes, with the incentive of a linked investment account.
Indie CEO Peter Castleden says assurance is a grudge purchase because you only receive a payout if you become ill, die or are disabled. But "if nothing bad happens to you, the money you spend on cover with Indie is not wasted because a percentage of your premium, based on your age, is invested each month and enjoys investment growth".
Indie is not the only life assurer offering incentives.
As a Discovery Life policyholder, for instance, one receives an upfront discount of up to 39% for linking your life cover, medical scheme and short-term insurance to the company's Vitality health rewards programme. You are also eligible for a "payback" of a percentage of your premiums at intervals.
Indie's "wealth creation" incentive centres on contributions to a money market investment (options are to be added) based on a percentage of one's premiums that declines as one ages and premiums rise. For example, 100% of your premium is invested if you take out cover before age 30, but by age 50, this is reduced to 55%.
In the '90s, big assurers sold universal policies that pooled risk and investment premiums, but were criticised when investment returns were lower than projected and for a lack of transparency about investments that subsidised the risk premium.
Castelden says the risk premiums on Indie's policies are not loaded to cover the investment. The investment incentive is paid from the insurer's funds.
Indie's selling point is that its policies are the most accurately priced in the market, using age, health and lifestyle data, but they remain competitive, Castelden says.
It is also the only direct insurer that fully underwrites its policies, he claims, asking questions online about one's health and lifestyle to assess risk to the assurer and price it accordingly, rather than relying on clauses that exclude pre-existing conditions and could result in claims being denied.
For example, a motorbike rider could pay around 60% more than a policyholder who does not ride a motorbike but otherwise has the same health, age and lifestyle, he says.
This means that if you are a high risk to an assurer, you probably need to shop around.
But Gregg Sneddon, an independent Cape Town adviser with The Financial Coach, ran a sample quote on his own life on Indie's website and found the critical illness cover was three times more expensive than his existing cover, and the income replacement plan four times more expensive.
He questioned the incentives insurers use to retain business, given that the average policyholder keeps cover for just seven years.
Indie offers policyholders 10% of their investment every five years and pays out the balance when they turn 70. If you cancel your policy or die before the age of 70, you or your estate will receive only a portion of the investment that is unlocked every five years.
Castelden says Indie has no blanket waiting period and exclusions are limited, but Sneddon noticed that the exclusion for suicide is for five years instead of the usual two.
Sneddon says Indie's offering appears to be aimed at sophisticated consumers who know the difference between income protection for disability and death. He says most consumers need advice. "As a consumer's circumstances change over the years, their life and disability cover may need to be adapted, and I'm not sure if Indie will be assisting its clients to review their assurance."