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To cal­cu­late the re­quired level of in­surance, the sur­vey di­vided the 14 mil­lion in­come-earn­ing South Africans into five seg­ments of 2.8 mil­lion peo­ple each, based on in­come lev­els. An av­er­age in­come and av­er­age age was then used to cal­cu­late the in­surance needs of each group.

The wealth­i­est 20% of the pop­u­la­tion have in­comes in ex­cess of R214 000 a year, with an av­er­age in­come of R500 000 a year. The av­er­age age is 42 years, with re­tire­ment at age 62. It was as­sumed that the in­di­vid­ual would only re­ceive an in­fla­tion-ad­justed salary un­til re­tire­ment.

Other fac­tors were also in­cluded, such as ex­ist­ing sav­ings that could be used for self-in­surance, the ad­just­ment to the house­hold ex­penses if the in­di­vid­ual died or was left dis­abled, as well as younger chil­dren grow­ing up and leav­ing home.

Based on these fac­tors, the sur­vey found that the av­er­age in­come re­place­ment re­quired was 64% for death and 75% for dis­abil­ity. The sur­vey also fac­tored in in­vest­ment re­turns of 1% above in­fla­tion if a death ben­e­fit was paid.

This cre­ated a cap­i­tal­i­sa­tion re­quire­ment fac­tor of 14.1 – in other words, how many years of in­come would be re­quired to be paid out as a lump sum to pro­vide for liv­ing ex­penses un­til the es­ti­mated re­tire­ment age.

For an in­di­vid­ual aged 42 earn­ing R500 000 a year, the amount they would need on death would be R4.5 mil­lion. Yet in­for­ma­tion gath­ered from the in­surance in­dus­try found that the av­er­age cover in this in­come seg­ment was R2.1 mil­lion, re­sult­ing in a gap of R2.4 mil­lion for the 2.8 mil­lion in this seg­ment. The to­tal gap in terms of death cover for the wealth­i­est seg­ment is R6.7 tril­lion.

For dis­abil­ity cover, the av­er­age high-in­come earner would need cover of R6 mil­lion, yet the av­er­age cover in this in­come seg­ment is only R2.7 mil­lion, leav­ing an in­surance gap of R3.3 mil­lion per in­come earner.

This gap means that should an earner die, the fam­ily would need to find an ad­di­tional R13 000 a month to fill the in­come gap. In the case of dis­abil­ity, the fam­ily would need to find an ad­di­tional R17 000. Al­ter­nately, the fam­ily would have to cut house­hold ex­pen­di­ture by more than a third.

– Maya Fisher-French

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