Two new products were launched on the bancassurance market this week. The products offer innovative options for people looking for basic risk assurance and for ways to pay for the schooling of their children.
First National Bank (FNB) and Momentum Life (both part of the FirstRand group) brought two innovative bancassurance products to the market this week to meet basic needs for risk assurance (death and disability) and to fund education of children.
The products are:
1. The Career Facility
Many South Africans, who are desperate to ensure the proper education of their children but who have restricted access to high street banks, are forced to use high-interest charging microlenders, often because of poor credit records or lack of security, Schoeman Rudman, the head of FNB Insurance, says.
The product is based on bank savings accounts, loan facilities and life risk assurance.
Rudman says the education product provides incentives for you to save for education, primarily by rewarding you with an ever bigger loan facility in return for greater savings.
The product is far more versatile than the current "savings only" education policies issued by the life assurance industry.
It is also more versatile than current education loans offered by most banks, as these are mainly limited to university or technikon education.
In fact, you do not even have to use the loan facility to pay for the education of your children.
The basics of the Career Facility product are:
- When your child is born or as soon as possible thereafter, you establish the facility for the nominated child. You must set a target date for your savings account of at least three years into the future.
The target date is the point at which you will expect to start drawing down on your savings to pay for the education of the nominated child.
FNB suggests that you start drawing down on your savings account when your child reaches secondary school or starts tertiary education.
- Every month you contribute a voluntary pre-determined amount to the facility. You can vary that amount. You may also withdraw any amount before the target date. You receive interest rates higher than short-term savings rates (currently five percent). Against this, however, you will pay costs of R9.50 a month for the first nominated child only (the R9.50 will not be charged for other nominated children) and five percent of each contribution.
- When you start drawing down money from the savings facility, you continue to pay in your regular
contributions.
- The objective is to save as much as you can by the target date. On the target date, FNB will guarantee you a loan facility that is the lower of:
* An amount equal to double the value of the savings account (less any additional payments above your regular payments in the last year). If you withdraw money before the target date, you will obviously qualify for a lower amount; or
* Seven times your gross monthly income; or
* R300 000.
The loan interest rate is set at what is called prime (the interest rate the bank charges its best customers). The loan amount is guaranteed even if you are listed with a credit bureaus having a poor credit record.
"We are telling clients that if you can prove to us you can save, we can reward you by lending money to you," Rudman says.
- When you have depleted your savings, you can then access the loan facility. The loan facility must be repaid within five years after the nominated child graduates or by the year in which the child turns 28.
- There is a twofold risk life assurance element:
* Optional contribution assurance: At a cost of five percent of the contributions to your savings account, you will be insured for all future contributions to the plan if you are incapacitated as a result of pre-determined physical or illness conditions. Under the policy, contributions will be paid for three months if you are retrenched from your job.
* Loan protection benefit: This benefit is automatic and pays off any outstanding loan on your death or incapacity, or the death of the nominated child.
2. The Living Facility
Rudman says that the Living Facility product aims at simplifying current risk assurance products which have become increasingly complex. It is called a "living facility" because you receive guaranteed cash paybacks, unlike with traditional life assurance risk products.
Rudman says the product offers highly competitive premium rates which makes the product considerably cheaper than most credit life assurance.
One of the reasons for the reduced cost is that commissions are only paid as and when you pay your premiums.
The basics of the product are:
- You can take out the cover for your entire life; or for a fixed term with a minimum of five years and a maximum of 40.
- There are two choices within the product:
* A living bonus facility: Every three years you will receive back 10 percent of the premiums you have paid over the previous three years.
* A living future facility: This option is only available with term cover. The benefit (the amount of assurance) is paid out at the earliest of your death or incapacity or at the maturity date.
In other words, if you die before the maturity date, your beneficiaries get the money, but if you live to the maturity date, you get the money.
- Premiums and benefits are guaranteed for life.
- You can increase the amount assured by 10 percent a year through a cover top-up option. A new premium will be set for the extra amount assured. Rudman says premiums are very competitive.
For example, a 35-year-old non-smoking male with a degree will pay R206 a month for R800 000 life and incapacity cover. This is cheaper than three other major life companies and more expensive than two others.
For a 35-year-old female, the premium drops to R132 a month. The premium is lower than those of five other major life companies. And there is no cash back with the other companies.
- If you fail to pay your premiums within 30 days of due date, you will lose all benefits, as well as any accumulated living bonuses or the living future benefit. However, if your living future facility has been in force for five or more years and you are within five years of the end of the term, you will qualify for a loan facility from FNB to pay the premiums for the last five years. The loan amount, which is limited to the assured value, will be deducted from the maturity amount.
- The living facility comes with the two optional add-ons which are available until age 60:
* An inability benefit: This benefit pays out if you are incapacitated as a result of pre-determined physical or illness conditions.
* Facility protection benefit: This cover is provided to pay your premiums if you become incapacitated or are retrenched. The retrenchment benefit has a maximum period of three months.