Know Your Money with Bronwyn Waner and Craig Finch
Know Your Money with Bronwyn Waner and Craig Finch
148. Your Health Could Boost Your Retirement Income, Here's How
What if your health challenges could actually boost your retirement income? That's the revolutionary concept explored in our fascinating conversation with Clive Lazar, regional manager for Just Retirement in Johannesburg.
Most South Africans don't realize that traditional retirement annuities create what the industry calls "cross-subsidization" - where people with shorter life expectancies essentially subsidize those who live longer. It's a system that unfairly benefits the healthy at the expense of those with medical conditions. Just Retirement has turned this model on its head through their unique underwriting approach that examines your personal health factors like smoking history, medical conditions, and occupational hazards.
Unlike life insurance underwriting that penalises health conditions with higher premiums, Just Retirement has enhanced annuities reward those same conditions with higher starting incomes - sometimes 15-25% higher than standard rates. About 30% of their policyholders receive some form of income enhancement, giving them more monthly income from the same retirement capital. This approach ensures fairness by matching retirement benefits to individual circumstances rather than using one-size-fits-all calculations.
We also tackle common concerns about life annuities, including the fear of losing your capital if you die early. Clive explains how guaranteed term options protect your investment by ensuring payments continue to your beneficiaries for a specified period, even if you pass away. Whether you're planning your retirement or advising clients, this conversation highlights innovative solutions that could significantly improve retirement outcomes for those with health challenges.
Curious how your health profile might actually benefit your retirement planning? Listen now to discover if you could qualify for enhanced retirement income that traditional providers might not offer.
Please subscribe to our podcast or have a look at our website
www.growthfp.co.za
Hello everybody. Welcome to Know Your Money. I am Bronwyn Wayner.
SPEAKER_03:And I'm Craig Finch, and we are from Growth Financial Planning. We hope you enjoy our podcast.
SPEAKER_02:Hello, everybody. Today we have Clive Lazar from Just Retirement again. In our previous episode, he explained a little bit of the underwriting and that Just Retire does things a little bit differently. So, Clive, if you can just introduce yourself and just explain to us how the industry does it and how you do it differently and how you doing it differently impacts or helps the client.
SPEAKER_00:Morning, Clive. Morning. Good to see you again. Morning, morning, Craig, morning, Bronwyn. Thanks for inviting me. So my name's Clive Lazar, I'm the regional manager for Just Retirement here in Johannesburg. And yeah, so we can focus specifically about just retirement and what we do differently, which is we do underwriting at retirement. And it's quite a unique concept and quite a reverse sort of psychology of what we see in the industry. So perhaps just to explain it in a way that makes the eas makes sense for your listeners, normally when it comes to underwriting, people have a lot of negative connotations about it because they associate it with when they buy life insurance. And you know, the insurer will do a whole lot of assessments, medical assessments, and then they're either going to give you what we call a standard rate, or they're going to load you, they're going to give you a higher premium, or they could even exclude you if you've got some serious medical conditions or medical factors. So now we turn that on its head because what we do is we say that it's we want to treat customers fairly at retirement. And what happens in the industry is that when somebody retires and they take their fund credit and they go to the insurer with that fund credit, that capital amount, and say, Yeah, we go, can you give me an income now? That what's what's happening is there's a massive amount of what we call cross-subsidization. Cross-subsidization is a very good factor and is one of the important foundations of a life annuity. However, there's good and bad cross-subsidization. And when it comes to underwriting, this is where we allow the good cross-subsidization, not the bad cross-subsidization. What I mean by that is the other insurers, what happens is they just look at your age and your gender and your fund credit. So what you have is you have a scenario where there's bad cross-subsidization in this in the sense that the poor are subsidizing the rich and the sick are subsidizing the healthy. In other words, um the way the annuity has been priced is there is um cross-subsidization effect that's happening in that pool across the members. We we don't want that to happen. We want to treat each member fairly. So what we do is we say, okay, let's look at your specific situation. So not just your age, gender, and fund credit, but let's look at your medical history. Um let's see, did you smoke? Um, have you worked underground? Do you have any medical history like have you had strokes, heart attacks, cancer, diabetes, all the well-known traditional diseases? And let's factor those um medical conditions into the price of your inerty, such that if according to the medical information you provide us, we believe that your life expectancy is shorter than the average, we're going to give you what we call an enhancement or an uplift to your starting income.
SPEAKER_02:Um So can I just see if I've got this right? So what you're sort of saying is the normal industries, the the normal providers, there's a million rand and there's two clients. And one has cancer and the other one is completely healthy. Those people will both get, for example, 5,000 rand. What you're saying, you guys do is you take into consideration that the person with cancer is not going to live till 82, likely, because they yes, they might, but most likely not to because of those factors. So instead of that person getting 5,000 Rand, you'd give that person, for example, 7,000 Rand because they're going to get their money out that they've given in.
SPEAKER_00:Is that that's spot on, Bronwyn? Spot on, that's exactly well put and explained um nicely for your listeners. Um and so just to then expand that, so we look at that medical information um and maybe just to explain it a bit further, we have trained underwriters um so the uh the client can either um pr uh elect that we can contact that that client, we can speak to them telephonically, we'll ask them a whole lot of medical questions, the medical history, and just to point out if um they're purchasing what we call a joint life annuity, so husband and wife, let's say, then we have to underwrite both. So we have to look at the husband and the wife. Um and so that's one option. We'll we'll we'll um ask those questions telephonically and then we'll do um an assessment where we run that information through our system to calculate the price. Or alternatively, if um the client doesn't want to be contacted, they can complete what we call a health profile questionnaire. So all that information contained in a questionnaire, and they just fill it out and they indicate all that information and their different conditions, and they submit that, and then we process it that way. So either or whatever they prefer, um, and we then use that information to calculate a specific price for that particular member, and that's why we call that treating customers fairly. So the client gets the starting income that's based on their specific situation. Maybe just to point out that um so we've been doing this um this what we call um in enhanced underwriting or um uh uh your enhanced annuities is perhaps a better word. We've doing this from the outset. Um and out of all our policyholders, just to share some stats with you, we we would probably say about 30%, about just under a third of all our pulse policy holders um when they when they came to just they received some type of an uplift um uh uh in their starting income. Some of the uplifts are not large, some of them can be around three, four, five percent. That's kind of your average uplift, but some of them are large because of some serious underlying conditions um where they can be 15, 20, 25 percent and so forth. Um, and it's important to point out that that uplift is applied at the onset when the um client starts the policy. Um so instead of starting, for example, with a thousand Rand a month, he's now starting with 1,100 Rand a month. And that uplift can have a big impact and help the client, you know, be able to meet some of their monthly expenses, which otherwise they wouldn't have. We often say to advisors that it's it it it it it wouldn't make sense not to offer it because uh perhaps to point out there's no disadvantage or downside for offering underwriting. So we don't penalize you for being sick. We almost encouraging encouraging or almost in um allowing an individual to benefit if they've got those conditions, and that's how you treat customers fairly.
SPEAKER_02:So can I ask when you're doing the joint one? Let's say the husband is now sick and he's been given a certain statistic on how long he's gonna live, but the wife is really healthy. Would that still get enough liftment or not necessarily because it is a joint life? So, what a joint life means is that husband will receive the income, and if he passes away, the spouse continues to get the income. With a life annuity, normally is if the person passes away, that income falls away and the capital would fall away, just to explain to the listeners. So now if the one person is sick and the other person isn't sick, is there still a boost?
SPEAKER_00:Another great question, Brunan. Um, so certainly if it's a joint life and we have to factor both life expectancies into account, um you can find that even though on the one, for example, in the case we're talking about the husband who might have some conditions, um that uplift could be s diluted to a certain extent when we then do the underwriting for the spouse who's healthy. So that that definitely will and can have an impact that if it's a joint life, if one if the one party is sick, another one is healthy, it dilutes the uplift to a certain extent.
SPEAKER_03:But the point is you still get the uplift, you still get the opportunity to have an underwritten case if you're if you're unhealthy, whereas it's not common in the in the marketplace, which is brilliant.
SPEAKER_02:Yeah.
SPEAKER_03:And another thing on that uplift, um, the increase will be on the the total amount. So the example you gave, the 1,000 versus the 1,100, the next year goes up by 7%. It's on the 1,100, is that right?
SPEAKER_00:That's 100% correct. Yeah. So your starting income is adjusted based on any uplift or enhancement at the onset when you start. So just maybe to expand, what happens is you come through to us, um, we'll automatically issue you with what we call a non-underwritten quote. So just your age, your gender, your fund credit, those basic criteria. Um, and you'll see what that income is. You'll then, if you elect to, because it's it's not compulsory, you don't have to provide or do underwriting, although, as we've said, there wouldn't be any downside to doing underwriting. You'll then proceed with the underwriting either telephonically or through our health profile questionnaire. We'll process it. Um, we we use um RGA, they are our reinsurers, so um we we send it through to them um and they assist us in assessing and pricing it, and then within 24 to 48 hours we issue what we call an underwritten quote. And straight away you'll see if there's an uplift or not. Um and if that then is accepted, the underwritten quote, that starting income is set with the uplift there and then, and it can never drop below that. That's how a life annuity works. You've got an annuity for your lifetime and it can never drop. So that and maybe just to point out to the listeners, that is one of the benefits of a life annuity is that you buy in an income for life, which um doesn't get affected in any way by how long you live. So what we call longevity or mortality is taken off risk is taken off the table. Um, and any risk in investments, investment volatility has no impact on the life annuity either. So that then will continue to pay for your lifetime.
SPEAKER_02:So just one last question. Uh I have found that sometimes people are quite scared to take a life annuity because they feel like, well, what happens if I die the next day? Then all my money's sort of gone. So one of the things that you guys do also offer, and and the industry offers it, is a guaranteed term. So if the client gives that money, they're guaranteed that income for five years or ten years. So now when you're doing these risk factors and someone takes a guaranteed term, uh do you still elevate the the capital, even if they income. The income?
SPEAKER_00:Yes, no, definitely um the guaranteed term. So maybe just to pause and and explain to the listeners that when it comes to a life annuity, one of the um concerns that many people have is that you hand in your capital over to the insurer and you're going to then lose if you pass away, you've lost your capital. And that is true. So so that's how these investments work. But remembering um on the the same token is that it will pay you an income for your lifetime, no matter how long you live. So if you live longer than the average life expectancy, you've definitely scored or done better than had you not lived longer. But then when it comes to life annuity, one can also structure in certain what we call death benefits. So you can then say to the insurer, okay, here's my million rand, you give me an income, but please I want to protect myself so that at least I get a good percentage of that capital back. And the way to do that is to structure in what we call a guaranteed term, or another word for that is a minimum payment period. And the insurers allow you to structure up to 20, sometimes 25 years of a guaranteed term on your policy. So the insurance company is gonna pay the income for your lifetime, no matter how long you live, but at the very least, it's gonna pay for that minimum term, five, ten, fifteen, twenty, however long you've structured.
SPEAKER_02:So if it wasn't paying to you because you passed away, they nominate a beneficiary, right? And then that money would go there.
SPEAKER_00:Yes, that's correct. Obviously, what what's gonna happen is that if you have a life annuity with that minimum guaranteed term, once you've passed away, you would have nominated at the outset on that policy who the beneficiaries are. And then you'd also have to set up front um when you take out the policy whether you want the income um to continue to be paid monthly or whether you want it to be paid as a lump sum to the beneficiary. So you must elect that um that that that particular um option and then all that would happen is we as the insurance company would then calculate either the lump sum for the remaining period of that term, or alternatively we'll continue to pay the income to the beneficiary. So it's either or depending on which one the the client uh selected.
SPEAKER_02:So if we do the ga do do the guaranteed term and the the underwriting of the person being unhealthy, does that fall away? Or not necessarily? Because say, for example, you know, a person that's only got three years to live, you would let them get a high income, but now they've selected to do a 10-year guaranteed term.
SPEAKER_00:No, so Bron, I I uh it it no, it wouldn't work like that. I mean, you you you come to the insurance company, you you set up the terms and conditions of that life annuity up front. So you're going to say, okay, here's my capital, um, please can you give me um an income for my life, a life annuity, I want a certain amount of uh guarantee in terms of how long I wanted to pay for. All of that is set up front in terms of choosing the policy. And then once you've chosen those terms and conditions, the underwriting kicks in. So the underwriting is going to apply whether you've got the guaranteed term or you haven't got the guaranteed term.
SPEAKER_02:Awesome. Thank you so much, Claud. Really appreciate it.
SPEAKER_03:Thanks, Clav. Good insight, thank you. Thank you for listening. If you have enjoyed this podcast and would like to subscribe, please visit our website www.growthfp.co.za. The information we have provided in this podcast is our personal opinion. For more detailed information, please discuss your financial situation with a financial planner.