The average SA income earner had a life insurance shortfall of at least R1m and a disability cover gap of about R1.4m at the end of December 2021, a new study showed on Wednesday, findings that expose the extent to which households are living on the edge of poverty.
The study, which is conducted every three years by the Association for Savings and Investment SA (Asisa) in partnership with True South Actuaries & Consultants, indicates that the SA adult working population, particularly between the ages of 30 and 50, did not have sufficient cover for sudden, life-changing events such as the death or disability of a breadwinner.
“Insurance represents a grudge purchase for many earners as there are no immediate tangible returns for the money spent,” said Hennie de Villiers, deputy chair of the Asisa life and risk board committee.
Safety net
“Younger people especially tend to think that death and disability affect only older people and they are less likely to spend their hard-earned money on insurance premiums.”
The findings come against the backdrop of a raging debate about whether SA should extend its social safety net, a policy that has polarised economists, civil society and policymakers in a country grappling with fiscal constraints but where more than 35% of people are unemployed.
The study also showed that income earners above the age of 50 are likely to have more life cover than needed, while the disability insurance gap is greatly reduced. This is because the study assumes that the insurance need exists only until retirement age since provision for income in retirement should be covered by retirement savings rather than risk insurance.
About 14.3-million income earners had only enough life and disability insurance to cover 45% of the total insurance needs of their households.
While the Covid-19 pandemic has raised awareness about the importance of life cover and general risk policies, the proportion of consumers taking up these policies is still relatively minuscule, suggesting that incomes are under immense pressure from the rising cost of living.
Insurance gap
The study shows an average annual growth of 5.5% in life cover over the three years to end-December 2021, while disability cover increased by 2% per annum.
In 2021, life insurers noticed increased uptake of new risk policies and a drop in the policy lapse rate for the first time in many years.
“But unfortunately, as this study highlights, we are nowhere near closing the life and disability insurance gap,” said De Villiers.
The combined insurance need of SA households was R62.9-trillion at the end of December 2021. With total cover in place of only R28.6-trillion, the total insurance gap amounted to R34.3-trillion.
WS Nel, actuarial research lead at True South Actuaries & Consultants, said the average earner would need to spend an additional 4.5% of their monthly pre-tax income to purchase adequate life insurance.
However, without adequate life cover in place, the average family would be forced to generate an additional monthly income of R5,630 to maintain their standard of living after the loss of an income earner. Or the family would have to reduce household expenditure by 30%.
The disability of an income earner would force the average family to generate an additional monthly income of R7,443 to maintain their standard of living or reduce household expenditure by 33%, Nel said.
Closing the gap, on the other hand, would cost the income earner an additional 2.6% of their pre-tax monthly income.
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