HOW MUCH IS ENOUGH?
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