We believed that Wealth Bonus 1.0 was terrific. And with it, we did something impossible by industry standards. We gave clients a once-off single investment that was baked into every Sanlam Indie policy.
The biggest downside though, is that it was actually quite complicated, which led to some misunderstandings, and often genuine disbelief and skepticism. So we made it better. Now we match up to 100% of every premium you pay into an investment, which grows with you. Simple. And we’ve sweetened the deal at the same time, without changing our price.
What was Wealth Bonus?
For those of you who will never get to know and love Wealth Bonus 1.0, here’s a brief summary of what it was: whenever anyone bought a Sanlam Indie policy, we created a big once-off investment with the policy. And when I say big, I mean big. For example, a 30-year-old paying a R500 premium each month would get an investment in the region of R50,000. This would grow over time with investment returns. Every 5 years, we would release a portion of the investment which could be withdrawn by our clients. And whatever was in the investment pot when the client turned 70, would become fully available to the client.
Why did we create Wealth Bonus 1.0 in the first place?
We believe it is patently unfair to have to pay life insurance premiums for most of your life, and have nothing to show for it if you manage to survive long enough. There is a reason that the life insurance category is universally considered a grudge purchase. And this is because, as a client, your best-case scenario is you will outlive your need for the cover, cancel the cover, and never see a cent. And the worst-case scenario is that you die or become disabled, and claim your cover. That’s a pretty awful best-case scenario, obviously, because it means you will throw your money into a hole for many, many years in the hope you’ll never need to claim.
At Sanlam Indie, we want clients to Plan to Live, not to Die.
We don’t want our insurance to be a grudge purchase. And we believe we can build wealth for you at the same time as having high-quality insurance cover. The Wealth Bonus delivers just that.
So what is the new Wealth Bonus?
We match a percentage of every premium you pay into an investment. And this investment grows, like any other, to generate wealth.
Hold on. How am I winning if you’re taking a huge investment away from me?
If you’re skeptical, you’re right to be so. The 30-year old we used in the example above is no longer going to get her R50,000 lump sum Wealth Bonus investment, but will rather be getting R500 a month premium match into her Wealth Bonus. And R500 a month sounds a lot less than R50,000 today.
Let’s break it down.
Wealth Bonus 1.0 would have started her with R50,000 which would have increased with investment growth over time. Every year she also would have received a small additional allocation if her premium increased. Wealth Bonus 2.0 gives her allocations every month that she pays a premium. So although the starting value of R500 is much smaller than the R50,000 , it’s amazing how quickly it catches up.
For example, after 5 years she would have received a CashDrop of R2,400 with Wealth Bonus 1.0 and her total Wealth Bonus at that stage is likely to have been R91,000. With Wealth Bonus 2.0 though, her first CashDrop is R3,900 and her Wealth Bonus value at that stage is likely to be R39,000.
On her 50th birthday, she would have looked forward to a CashDrop of R15, 300 had she been on Wealth Bonus 1.0 and her Wealth Bonus value would likely have been about R485,000. With Wealth Bonus 2.0, she can enjoy her 50th birthday a bit more as she's getting a CashDrop of R39,000 and her Wealth Bonus value which has been increasing monthly is already estimated to be worth R386,000.
If we fast forward to her 70th birthday, we can see how Wealth Bonus 2.0 is much better for her, because it is likely to be worth R3,5 million at that stage if she decided to leave her CashDrops invested. Wealth Bonus 1.0 would have been worth R3 million at that stage. So moving to Wealth Bonus 2.0 has given her an extra R500,000 to spoil those grandkids with.
What if I already have Wealth Bonus 1.0, and want to keep it? After all, isn’t it a contractual benefit?
That’s a very good question. And yes, Wealth Bonus is a contractual benefit. However, we are allowed to, by law, amend the terms of an original contract if the new contractual terms leave the client better off. So, because our clients who had Wealth Bonus 1.0 will now be getting bigger CashDrops with Wealth Bonus 2.0, and a bigger final payout at age 70 assuming equal cash withdrawals over time, there are no circumstances where our clients will be worse off.
And we’re actually pleased that we are able to make all our original clients better off. There are softer benefits too of upgraded Wealth Bonus, such as not being able to lose any Wealth Bonus if there are premium or cover reductions.
There’s no free lunch here. So who loses if the clients win?
The increase in benefits as a result of upgraded Wealth Bonus is being funded by Sanlam Indie. So our estimated profitability is lower when we make the change. But we will offset this with a more compelling, and easy-to-understand story.
So why did Sanlam Indie decide to change the way Wealth Bonus worked?
When crunching the actual numbers, Wealth Bonus 1.0 was an incredible deal. We didn’t increase the price of our insurance to give it to our clients, and if you were a client with us for long enough, you would get back multiples of what you paid in premiums when you turned 70.
The Achilles’ Heel of Wealth Bonus 1.0, however, was that is was quite difficult for people to understand. And because we pulled off the seemingly impossible, it was also difficult for people to believe. I’m willing to bet that, despite my brief description explaining it above, you probably still have many questions about how it works, how it’s possible, and if there are any catches (there aren’t).
In a book I read recently, the author suggested that there are three questions potential customers must answer if we expect them to engage with our business. And they should be able to answer these questions within a few seconds of looking at our website:
- What do you offer?
- How will it make my life better?
- What do I need to do to buy it?
With Wealth Bonus 1.0, we had a proposition which could help our clients succeed, and was certainly better than the industry alternatives out there. But it was quite difficult to understand and appreciate it after a few glances at our site. And the last thing we want is for our potential clients to have to break a mental sweat just to figure out what we offer. While going through the effort to find better ways to help our clients and potential clients understand Wealth Bonus 1.0, we stumbled on an explanation which really resonated well when we tested it.
We did some sums and equated the value of Wealth Bonus 1.0 to a regular monthly investment contribution.
For example, with the 30-year-old paying a R500 monthly insurance premium (and a R50,000 Wealth Bonus 1.0), we calculated that to get the same Wealth Bonus amount at age 70, he or she would have to save the equivalent of R391 per month, every month, until they reached the age of 70.
The R50,000 Wealth Bonus was worth the same as a R391 monthly investment contribution. And this investment was included, free of charge, in your R500 monthly insurance premium. When we shared this way of explaining Wealth Bonus 1.0 to the Sanlam Indie team, the reaction was surprisingly good. Most people couldn’t actually believe that Wealth Bonus was that generous. And not only did they appreciate the size and significance of Wealth Bonus, but they actually understood it better. When we checked it with decidedly more ordinary and less nerdy folk, the response was overwhelmingly positive too.
Inspired by the feedback, a few of us gathered around a table and started discussing how we could incorporate this way of talking about Wealth Bonus. And then came the spark from left field:
Instead of changing the way we help people understand Wealth Bonus, why doesn’t Wealth Bonus just work like this?
As soon as that thought was uttered out loud, it was obvious to all of us that, yeah, Wealth Bonus would be much better and simpler if we just matched your premiums as you paid them.
Better Wealth Bonus is here
The good news for all existing clients is that we’ll automatically upgrade you to Wealth Bonus 2.0, including all of the benefits that come with it. One of Wealth Bonus 2.0’s biggest benefits is that your projected investment value when you turn 70 is higher than it was with Wealth Bonus 1.0. In addition, unlike with Wealth Bonus 1.0, lowering your premiums or dropping cover you no longer need, will have no impact on your accumulated Wealth Bonus, unless you cancel your policy outright.
We’re really excited about this improved proposition, and are always thrilled when we can create more value for our clients.