South Africans flock to dollars for protection

More South Africans are opting for life cover in U.S. dollars, an increasingly important strategy for future-proofing in the country. 

This is according to Discovery Life’s 2024 Dollar Life research paper, which examined how South Africans are diversifying their risk cover to include life insurance that pays out offshore in U.S. dollars

The research revealed that since the inception of the Dollar Life Plan, Discovery’s life insurance plan paid out in US dollars, premium income from offshore risk planning has grown by an average of over 20% year over year. 

Over the last five years, premium volumes have more than doubled 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,” Discovery Life Deputy CEO Gareth Friedlander said.

“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.” 

An increasing number of people live and study overseas or even work remotely but live locally.

“South Africans are more globalised than ever and seeking ways to diversify their risk cover. They realise 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,” Friedlander explained.

The paper revealed that two out of three Dollar Life policyholders also have local policies, and clients who have both hold 40% of their coverage offshore.

“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.” 

Because South Africa has a lower cost of living than Europe and North America, many people are also returning home or staying local while keeping their overseas interests.

This global lifestyle needs currency-matching and hedging solutions. The research shows that from 2014 to 2024, the U.S. dollar grew 68% stronger compared to the rand, far more than the expected 25% based on inflation. 

This means that a client with equal local and Dollar Life Plans in 2014 would now have 35% more coverage with their Dollar Life Plan than their local plan.

“This is significant for anyone who wishes to maintain the purchasing power of their life insurance payout in the future,” Friedlander said.

There is also a need for risk cover that matches growing offshore medical and education costs.

“We see a very real need for clients to match their highly specialised medical needs. Complex treatments for cancer can cost in excess of R1 million a year and medical devices can cost almost R2 million, of which three in every four devices are imported into South Africa.” 

“These costs are growing at a much faster rate than South African inflation as a lot of research and development occurs internationally,” said Friedlander.

Likewise, many clients want to protect against rising education costs where there is the possibility of their child studying overseas.

“For the last five years, at least 12,000 South African students have been studying abroad every year and education inflation is consistently around 2.5% higher than normal inflation, locally and abroad.”

“These are all important considerations for any South African considering risk cover, whether it’s for severe illness, their children’s education, or to leave a legacy.” 

Friedlander said that there’s a misconception that offshore products are only for high-net-worth individuals.

“This is understandable; for offshore investing, people often need a large lump sum to meet the minimum investment.” 

“However, many people are unaware that offshore risk protection, like the Dollar Life Plan, is possibly the most affordable method of diversifying one’s financial plan.”

For example, the current average premium across new local and offshore risk policies is R1,750, compared to Dollar Life Plan’s minimum monthly premium spend requirement of $50 (R900).

Discovery Life has also found that nearly 30% of Dollar Life Plans have a premium of $100 (R1,835) or less, indicating that many of these policies are taking advantage of this diversification opportunity without spending more than local policyholders.

“The bottom line is that we now live in an incredibly interconnected world, and you don’t know where you’ll end up,” adds Friedlander. 

“Affordable and accessible life insurance – that pays out in dollars – helps to future-proof whatever responsibilities, liabilities, or aspirations our clients have.”