The Zimbabwe Independent
Getting life policy for what?
Most individuals and households tend to delay or avoid taking out life policies simply because discussions on life cover tend to revolve around the topic of death.
Further, certain groups in society may also be uncomfortable discussing death and may not even see the need to have a life policy.
According to Piggy, this could also be the same reason why the average person in Zimbabwe does not even think of writing a will.
It is interesting that one of Steve Job’s famous quotes goes like this; “No one wants to die. Even people who want to go to heaven don’t want to die to get there”.
Now, if no one wants to die, how will they even plan for their death or leaving behind their loved ones?
Yes, it is indeed a tough topic, but the fact is that we cannot predict or sometimes prevent unfortunate events such as sickness, accidents, death or theft. If not managed, these events can have a significant impact on the financial well-being of our loved ones.
Insurance is a means of protection from such financial loss. It helps people to hedge against the risk of a contingent or uncertain loss.
Life insurance provides a monetary benefit to a life insured’s family or other designated beneficiary and may specifically provide for income for funeral and other final expenses.
Life insurance policies often allow the option of having the proceeds paid to the beneficiary either in a lump sum cash payment or an annuity, which is known as the death income benefit.
Death Income Benefit
The Death Income Benefit pays a monthly income to your dependents in the event of your death.
Why take the Death Income Benefit?
• A monthly payment rather than a lump sum benefit will give you the peace of mind that the provision for your dependents is enough and will not run out;
• You can remove the burden for your dependents to have the financial responsibility of investing and managing a lump sum while coping with your death;
• The income payments are payable until you would have turned a certain age, which is selected upfront; and
• In most cases, the benefit pays out taxfree, even though it may be payable over the long term.
Overall, individuals and households should always assess the impact of taxes and any fees when choosing life policies.
In a country such as Zimbabwe, the currency in which the policy is written is also key given the impact of inflationary pressures.
It should be noted that the low confidence in the broader financial services sector has stalled the deepening of insurance penetration in the country.
Official figures carried out by Insurance and Pensions Commission (Ipec), show that Zimbabwe has a 34% uptake of insurance products.
In addition, 76% of that uptake is accounted for by funeral assurance products. More recently, the industry has seen a high demand for United States dollar-denominated policies given the need to protect value.
That said, the good news is that a life policy has more uses than just hedging against losses associated with death. A life policy is a very important financial instrument in the banking and finance world as it serves as security on loans.
Further, individuals can use life policies to save by adding the cash-benefit to their plan. With this benefit, the plan-holder will receive a cash-back after a specified number of years. There is also an option to receive a full lump-sum or to roll-over the investment for another term.
Other risk management strategies
In addition to taking out a US dollar-denominated life policy, one can build an investment portfolio as a strategy to mitigate against risks associated with death and illness.
Generally, most people think that one needs a Finance degree to invest in shares on stock markets. However, the truth is that any person, with extensive or very little trading experience, can trade or invest in shares successfully.
Piggy has been recommending folks to take advantage of opportunities in the market by buying into undervalued stocks. New exciting capital market developments such as the introduction of ZSE-Direct and C-Trade enable anyone to access the Zimbabwe stock markets in real time from anywhere, anytime using everyday basic gadgets.
These platforms also give the Zimbabwean Diaspora a chance to invest in shares with enhanced simplicity without asking anyone home to do it for them. They can even monitor their portfolios in real time.
However, investing or trading on the stock market also requires one to have good advisors that work in the best interest of clients. Below are some tips on how to identify the best stock broker.
Finding the right stock broker
Here is what to look out for when identifying the best stock broker:
• Professional Advice. There is need to look out for a brokerage that provides excellent recommendations that are unbiased and geared towards the best interests of the client;
• Quality Service. The quality of service for both large and small account holders should be the same. In other words, both types of customers should get red carpet treatment. Further, brokers should take time understanding an investor’s risk-tolerance level;
• Help with calculating your taxes. As a value-added service, brokers should assist in determining the amount of taxes owed by the investor;
• First choice in IPO offerings. Good brokerages should always inform their customers about new initial public offerings (IPOs) so that customers can get in on the ground floor (the first stage) of a potential investment opportunity;
• Access to other investment options. Some investors may also need help managing other assets and investments in private companies or partnerships and shown below;
• A little peace of mind. Brokers are paid to watch for changes in the market so that investors do not have to;
• Brick and mortar offices. Some investors may still need to visit their brokers face to face to feel comfortable. This can also encourage investor trust; and
• Innovation. The world is changing, and technological trends are evolving. Good brokerages are consistently re-inventing new ways of interacting with clients while improving customer service.
This involves providing cutting-edge economics and market intelligence reports, financial results review notes as well as company specific research reports.
Overall, Piggy recommends that individuals and households combine both risk and investment products within their financial plans. This entails taking out a life policy while at the same time building a portfolio of shares that are poised to at least retain value over the long term.
Matsika is the head of research at Morgan & Co, and Founder of piggybankadvisor.com. He can be reached on +263 78 358 4745 or batanai@ morganzim. com/ batanai@ piggybankadvisor.com