Safeguarding the Future:Income Protection for SA's Entrepreneurs

By Monique Terrazas According to the most recent Global Entrepreneurship Monitor (GEM) survey, South Africa ranked 27^th out of 59 countries in terms of its Total Early-stage Entrepreneurial Activity (TEA) rate of 8.9%. This is a significant improvement on the 2009 TEA rate of 5.9%. However, according to the GEM data, a country at South Africa’s stage of economic development could be expected to have a TEA rate in the order of 15%, around 60% more than the current rate. There is, therefore, significant scope for entrepreneurial development in South Africa – entrepreneurs that could be your clients! The numbers of entrepreneurs in the country must, by necessity, increase significantly in the coming years. This is because South Africa's current unemployment rate stands at 25% - a full quarter of the working population. In addition to this massive employment backlog, hundreds of thousands of young people leave school each year, and the majority will not be able to find formal employment.  For rapidly increasing numbers of South Africans, this means self-employment as ‘necessity entrepreneurs’ will become the only option. While entrepreneurship seems a viable option, it is estimated that a shocking 80% of businesses fail within the first year. Among the top reasons for this high rate of failure is that many small businesses are built exclusively around the physical presence, capabilities, and knowledge of the business owner, who is often the business’ key income-generator. If the business owner cannot work - even for a short period - the business is at risk of total collapse. Unfortunately, few entrepreneurs realise just how great the chances are that they may be unable to work for a short period of time. Sobering statistics reveal a 30% possibility of becoming temporarily disabled before retirement. In fact, the likelihood of a temporary disability is substantially higher at all ages than that of a permanent disability. The few entrepreneurs that do have disability cover in place may be operating under a false sense of security, not understanding the substantial difference between temporary disability cover and permanent disability cover. They may believe that their permanent disability cover (which is often the focus in generic FNA disability analyses) provides adequate protection against the significant risk of a temporary interruption to their earnings. The reality is that permanent disability benefits don’t cover temporary claims and most employee benefit schemes impose long waiting periods for disability pay-outs. In short, permanent disability cover does not automatically mean complete cover. This is a serious problem in that FMI’s claims statistics reveal the vast majority of disability events to be temporary and short-term in nature. In fact, the majority of FMI's claims in 2010 lasted 3 months or less, which means permanent disability benefits would have provided absolutely no protection against these short-duration disability events. There is an unmatched opportunity for brokers to help the growing number of South African entrepreneurs beat the hefty business failure odds by offering them temporary income protection that will help guard against permanent financial disaster. This temporary income protection can be seamlessly integrated with the right permanent disability cover. Therefore, in the case of disability, the client will receive either income benefits designed to maintain a current lifestyle or lump sum benefits to help settle debt and cover the cost of lifestyle changes. Ensuring claiming certainty, FMI’s Temporary Income Protection (TIP) benefit is specifically geared to protect entrepreneurs and small business professionals against the high risk of short-term disability. This benefit includes no waiting period, no need to provide proof of pre-disability income, and no limit to the number of temporary benefit payments or the number of separate claims that can be submitted. Advocating a holistic approach to disability that combines permanent and temporary income protection, FMI ensures that brokers offer their clients a comprehensive disability solution. And there can be no greater reward for a broker than a client who says with gratitude: "If it wasn't for my temporary income protection, I would have been bankrupt.” To learn more about FMI’s latest Temporary Income Protection product, visit fmiwp