South Africans are diversifying their risk cover to include life insurance that pays out offshore, in US dollars, according to research findings by Discovery Life.
Marking the 10-year anniversary of its Dollar Life Plan, Discovery Life released its 2024 Dollar Life research paper at a media roundtable last week. 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.
Mr Gareth Friedlander, Discovery Life deputy CEO, 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.”
The research revealed that, 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.
“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,” said Mr Friedlander.
“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,” he added.
Diversified risk protection that hedges against currency volatility
“The paper reveals that two in three Dollar Life policyholders also hold local policies, and where clients have both, they hold 40% in offshore cover,” said Mr Friedlander. “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.”
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.
Mr Harry Joffe, Discovery Life’s head of Legal Services, said that the Dollar Life Plan uses the Single Discretionary Allowance (SDA) to fund the premiums. This allows South African tax residents to take up to ZAR1m ($54,710) offshore each year without South African Reserve Bank clearance. There is also an option to pay premiums directly in US dollars from offshore, for those who are no longer a tax resident in South Africa.
Accessible and affordable offshore diversification
According to the research, the current average premium across new local and offshore risk policies is ZAR1,750. With the Dollar Life Plan’s minimum monthly premium spend requirement of just $50 (ZAR900), this type of cover is one of the most accessible ways for people to enter the offshore financial world. Discovery Life has also found that nearly 30% of Dollar Life Plans have a premium of $100 or less, which indicates a large portion of these policies are taking advantage of this diversification opportunity without spending more than local policyholders.
Download the 2024 Discovery Life Dollar Life research paper here.