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Life Assurance
Wednesday, September 3, 2014 - 08:09
Foreign service

Global risk protection denominated in US Dollars; with the ability to convert good health into a tangible financial asset offshore to supplement and diversify retirement savings – that’s it in a nutshell.

Discovery Life is launching its Dollar Life Plan, a US Dollar-denominated life and disability protection product that protects South African policyholders no matter where they are when life or disability cover is required. Both premium contributions and cover pay-outs are in dollars.
The plan also offers a dollar-denominated facility, called the Dollar PayBack Fund. This fund grows according to how the client manages his personal health, and can be used to supplement retirement savings. It also helps to diversify retirement savings as it is based in a foreign currency.
“Offshore diversification has become a key part of financial planning,” Kenny Rabson, Deputy CEO of Discovery Life, points out. “And while individuals have certainly grasped this concept with regard to investing, they should ensure that their risk cover is also appropriately matched and diversified.”
He explains that risk protection in a stable and strong currency, such as the US dollar, ensures that clients are protected against the financial impact of a life-changing event, no matter where they find themselves in the future. “Globalisation, technology, multinational corporations and easy mobility are now key features of modern day living, and we can travel across different countries with relative ease. Many South Africans have the opportunity to work and live overseas, and are not always sure how long they will be away and what further opportunities may arise. People can relocate overseas, their children could move to another country, they may reposition some of their business interests offshore, and have personal assets or liabilities in other jurisdictions. While we have an idea of what our circumstances will be like five years from now, beyond that it becomes less certain. Over time, South Africans could find themselves with assets and liabilities in South Africa as well as offshore. This means that a portion of personal risk protection cover should be allocated to an offshore policy to ensure there is cover in changed circumstances.”
Rabson says the Dollar Life Plan is the first authentic offshore risk cover offering in South Africa. “The industry has previously introduced risk cover products that tried to offer currency diversification, but they were conventionally structured as Rand-hedges.”
He highlights the key benefits of an offshore risk policy. “It will be invaluable in assisting to meet existing liabilities that are outside of South Africa and are denominated in a foreign currency. And such a policy can also help protect against significant expenditures arising on a life-changing event, which can be costly due to potentially extensive Rand depreciation over time.”
Besides offering conventional life and disability cover, the Dollar Life Plan has an upfront Dollar Payback Fund feature. This benefit is linked to the ongoing health management of the client as measured through Vitality and Discovery Health (where applicable) and rewards the policyholder for good health.
The initial Dollar Payback Fund is calculated as a multiple of the initial monthly life cover premium, and is effectively the present value of a client’s future health. The multiple is 500 or 250 times, depending on the policy and its integration with other products. Thereafter, the Payback Fund grows on an annual basis, based on US inflation and depending on how well the policyholder manages their health. The dollar accumulation in the Payback Fund is ultimately paid out to the client at the later of 65 years of age, or 20-year policy duration. Final payment from the Payback Fund has no impact on risk cover offered by this plan, and life and disability cover remain intact.
“Because the Dollar PayBack Fund offers tangible rewards that can supplement offshore retirement savings, it is likely to drive positive and healthy lifestyle behaviours over the long term” he adds.
How it works

For example, a monthly life cover premium of $200 on a multiple of 500 means an immediate upfront Dollar PayBack Fund of $100 000. This fund grows every year, depending on US inflation and the client’s Vitality status and certain claims on their Discovery Health Plan (if applicable).
Minimum monthly premium is $100 and maximum is $4 000. As premiums are Dollar based but debited in rands, there will be some premium fluctuation in rand terms as currencies move.
Discovery Life takes care of reserve bank reporting requirements, and premiums come out of the R1 million annual single discretionary offshore allowance, so no tax clearance is required. Benefit proceeds can be paid into a foreign or local account, and Discovery can assist clients in opening an offshore facility if required.
For an additional premium, a Buy-Up Cash Conversion Benefit allows a portion of the Life Fund to be paid out in cash offshore at age 65. The level of such pay-out would depend on the Vitality status of the policyholder over the duration of the policy, thereby incentivising and rewarding good health. The plan is offered by Discovery International, a Guernsey branch of Discovery Life Limited.
 

Copyright © Insurance Times and Investments® Vol:27.9 1st September, 2014
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