If you buy cheap meat, you smell what you have saved when you cook it. This Arabic saying rings true for the new, low-budget Zimele life insurance products approved by the Financial Sector Charter (FSC) Council in January.
The products are the brainchild of the Life Offices' Association (LOA), which launched the Zimele standards for funeral cover a year ago, aimed at making insurance not only affordable, but also appropriate for the low-income market.
The initiative seems to be one of the many well- intended government efforts that fail to achieve their objectives.
Low-income earners will now be able to access cheap life insurance products, but decent cover will still be out of their reach.
Zimele life cover policy has a minimum cover of R30000 at death, which equates to a premium of R231 a month for a person aged under 55, calculated at a rate of R5 plus R2.70 per R1000 of cover as stipulated by the LOA.
Physical impairment cover policy also has a minimum cover of R30000, which works out to a monthly premium of R180 for a person under 55, calculated at a rate of R5 plus R1 per R1000 of cover as stipulated.
The minimum entry level cover is only R30000 for death or physical impairment, which does not provide much for the deceased's dependants, yet it still accounts for a considerable monthly premium.
Increasing the cover to a significant amount, such as R100000, results in a substantial rise in premiums, making these policies more expensive than those available on the open market.
The LOA-stipulated maximum monthly premium rates for life cover are R5 plus R3.5 per R1000 of cover, while disability cover is R5 plus R4.25 per R1000 of cover.
Gerhard Joubert, CEO of the LOA, says that following the successful launch of the Zimele standards for funeral products a year ago, the association started developing product standards for other life insurance products with the aim of making them not only affordable, but also appropriate for the low-income market. Zimele is a Zulu word meaning "to stand on your own two feet", but it is doubtful whether the poor will be able to do so.
Paul Beadle, general manager of Justmoney.co.za, says: "Although the LOA's Zimele scheme is well-intentioned, quotes generated for life insurance products already in the marketplace show that the Zimele policies may not be cost- effective for many people.
"When they are introduced, the Zimele products will be easier to access for lower-income consumers. They are simple to understand and are more flexible than traditional life insurance policies, but the amount of cover offered is very low for what remains a fairly substantial monthly premium.
"In fact, some existing life insurance products offer fixed premiums and guaranteed life cover for up to 15 years, helping policy holders to budget properly and providing extremely good value for money," says Beadle. He says instead of developing new products specifically for lower income groups, the life insurance industry should take steps to educate consumers and financial advisers about existing life policies.