An increasing number of South Africans are opting for life cover in US dollars. Why? For the simple reason that it holds greater value over in the long run.
This was highlighted in a new research paper from Discovery Life. This trend reflects a broader strategy among South Africans to diversify their financial risk and protect against currency volatility.
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The research indicates a steady rise in the adoption of offshore life insurance policies.
Reasons behind the shift
Several factors contribute to this trend:
- Currency Volatility: South Africans are increasingly aware of the instability of the rand. By holding life insurance policies in U.S. dollars, policyholders can safeguard the value of their payouts against currency depreciation. Over the past decade, the U.S. dollar has strengthened by 68% against the rand, offering a more stable option for risk cover.
- Globalization: South Africa ranks in the top 30% of the KOF Globalisation Index, indicating a high level of global interconnectedness. Many South Africans live, work, or study abroad, creating a need for insurance that is recognized and payable internationally.
- Rising Costs: Medical and educational costs are rising significantly, particularly for services and education abroad. Specialized medical treatments and devices, often imported, are increasing in price at a rate higher than local inflation. Similarly, educational expenses for South African students studying overseas continue to grow, making offshore life insurance a practical choice.
Hedging against future uncertainties
The research shows that two-thirds of Discovery’s Dollar Life policyholders also maintain local policies, with 40% of their cover held offshore. This diversified approach helps manage both local and international responsibilities, reflecting the global lifestyle of many South Africans.
Accessibility and affordability of offshore life cover
Contrary to the belief that offshore financial products are only for the wealthy, the research reveals that offshore risk protection is accessible to a broader population. The minimum monthly premium for the Dollar Life Plan is $50 (approximately R900), making it an affordable option for many South Africans looking to diversify their financial planning.
As South Africans continue to navigate an increasingly interconnected and uncertain global landscape, the shift towards life insurance policies that pay out in U.S. dollars is likely to persist. This approach provides a buffer against local currency fluctuations and meets the financial needs of a globalized citizenry.
