Some South Africans are diversifying their risk cover to include life insurance that pays out offshore, in US dollars, this is according to the Discovery Life 2024 Dollar Life research paper.
The white paper was released to mark the 10-year anniversary of Discovery Life’s Dollar Life Plan.
The Discovery Life Dollar Life plan is an offshore life insurance policy that pays out, offshore, in US dollars in the event of the policyholder’s death, disability, or severe illness.
According to the research, since the Dollar Life Plan’s inception, the year-on-year increase in premium income from offshore risk planning has averaged over 20% growth per year.
“Premium volumes have more than doubled over the last five years when compared to the first five years,” it said.
Discovery Life deputy CEO Gareth Friedlander said: “This latest round of in-depth research looks at the growing demand for global risk protection among South Africans, in particular, offshore policies that meet the needs of ever-more global citizens.”
He said traditionally, risk cover such as life insurance was held locally, through rand-denominated policies, but, as with investing, more South Africans are holding a mix of local and offshore portfolios to hedge against currency volatility.
“South Africa is in the top 30% of the KOF Globalisation Index – which measures how globalised a country is – with the rest of that group predominantly First World countries. With increasing numbers of people living and studying overseas – or even working remotely but living locally – South Africans are more globalised than ever and seeking ways to diversify their risk cover.
“They are realising the importance of risk protection that meets their offshore needs – from business ventures to protecting children’s education, and even for accessing specialised medical care. Importantly, they need risk cover that pays out in a stable currency, anywhere in the world,” said Friedlander.
The paper also found that two in three Dollar Life policyholders also hold local policies, and where clients have both, they hold 40% in offshore cover.
“This tracks with many South Africans being globally interconnected and having both local and offshore liabilities and responsibilities. For example, more people are embracing opportunities abroad while maintaining connections to home. Or, due to South Africa’s low cost of living compared to Europe and North America, locals are returning home or based locally, while maintaining overseas interests,” he said.
According to the paper, this globalised way of living requires currency-matching and hedging solutions.
“The research shows that in the 10 years to January 2024, the US dollar strengthened by a cumulative 68% against the rand while the change would have only been expected to be 25% based on inflation differentials. To demonstrate this impact, a client who elected to have both local and Dollar Life Plans of the same value in 2014, would effectively have 35% more cover under their Dollar Life Plan compared to their local plan today,” it said.
Friedlander said this is significant for anyone who wishes to maintain the purchasing power of their life insurance payout in the future.
He said the group sees a very real need for clients to match their highly specialised medical needs.
“Complex cancer treatments can cost more than R1 million a year and medical devices can cost almost R2 million, of which three in every four devices are imported into South Africa. These costs are growing at a much faster rate than South African inflation as a lot of research and development occurs internationally,” he said.
Friedlander said there was a misconception that offshore products are only for high-net-worth individuals.
“This is understandable; for offshore investing, people often need a large lump-sum to meet the minimum investment. However, many people are unaware that offshore risk protection is possibly the most affordable method of diversifying one’s financial plan.”
* Maleke is the editor of Personal Finance.
PERSONAL FINANCE