Mil­len­ni­als shouldn’t be with­out in­come pro­tec­tion cover

Pretoria News Weekend - - NEWS - MARTIN HESSE SEE PAGE 13

IF THERE’S one form of in­surance that sin­gle mil­len­ni­als should not do with­out, it’s in­come re­place­ment cover, which pays a monthly in­come if you be­come dis­abled. And yet there is rel­a­tively low take-up of this type of in­surance by this de­mo­graphic.

Re­search shows that younger mil­len­ni­als who have en­tered the work­force but who have not yet started a fam­ily are prone to risky be­hav­iour, such as binge drink­ing and late-night driv­ing. But they ap­pear not to recog­nise the im­por­tance of pro­tec­tion against per­ma­nent dis­abil­ity.

If you have re­cently started work, have you given any thought to what you would do if you were in­volved in a car ac­ci­dent and dis­abled as a re­sult, to the ex­tent that you could no longer earn a liv­ing? Who would look af­ter you? Who­ever took on that role would bear a huge fi­nan­cial bur­den, be­cause your liv­ing costs would probably in­clude high med­i­cal ex­penses, so you would re­quire more than what you were earn­ing.

You probably have a cer­tain de­gree of cover through your em­ployee ben­e­fits pack­age (which typ­i­cally in­cludes pen­sion ben­e­fits and group life and dis­abil­ity cover). But such cover is likely to fall far short of what you would need, par­tic­u­larly if you have a ca­reer’s worth of salary che­ques in front of you that you have now lost. And a group dis­abil­ity pay­out is typ­i­cally in the form of a once-off lump sum.

Dis­cov­ery Life has ex­plored the in­surance gap (the dif­fer­ence be­tween what you need to be cov­ered for and the ac­tual ex­tent of your cover) that mil­len­ni­als face, and in the process has come up with an acro­nym, Marouns, which stands for “mil­len­ni­als at risk of un­der­in­sur­ance”.

Ac­cord­ing to Dis­cov­ery Life’s re­cently re­leased pa­per on the topic, a 25-year-old pro­fes­sional earn­ing R20 000 a month has an ex­pected fu­ture in­come to­talling R18 mil­lion. This takes into ac­count in­fla­tion, as well as salary raises and pro­mo­tions that such a pro­fes­sional would typ­i­cally ex­pe­ri­ence over a 40-year ca­reer.

Not only do Marouns dis­play a “present bias”, giv­ing little thought to the out­comes of their suf­fer­ing a life-chang­ing event, they also ex­hibit high lev­els of risk-tak­ing be­hav­iour, the pa­per says, cou­pled with a “naive sense of in­vin­ci­bil­ity and un­der-ap­pre­ci­a­tion for the prob­a­bil­ity of suf­fer­ing a lifechang­ing event”.

Dis­cov­ery Life’s sta­tis­tics show that “al­most 88% of mil­len­nial deaths have been as a re­sult of be­havioural, yet largely con­trol­lable, causes, such as car ac­ci­dents”. And the young adult mo­tor ve­hi­cle fa­tal­ity rate is 60% higher than the av­er­age of all other age groups.

And while you may, if you have no de­pen­dants, be jus­ti­fied in not see­ing the need for life cover, be aware that you are more likely to be se­ri­ously in­jured in a mo­tor ac­ci­dent than to die in one.

Dis­cov­ery Life says it is es­ti­mated that of the 145 000 grad­u­ates en­ter­ing the work­ing world at the end of this year, about 3 900 will suf­fer a life-chang­ing event (dis­abil­ity, se­ri­ous ill­ness or death) be­fore age 35, 10 000 be­fore 45 and 23 900 be­fore 55.

Ac­cord­ing to a re­cent study by a global rein­surer, mil­len­ni­als are more likely to take out travel and mo­bile phone in­surance than life in­surance. This “ir­ra­tional un­der­con­sump­tion of life in­surance” is all the more per­plex­ing when you con­sider what good value it of­fers for peo­ple un­der the age of 30. Some­one in this age group would typ­i­cally pay R150 a month to in­sure a smart­phone worth R10 000, ac­cord­ing to Dis­cov­ery Life. On a R500 000 car, the mil­len­nial would be pay­ing pre­mi­ums of about R2 200 a month.

How­ever, in­come pro­tec­tion cover to the value of R18m would typ­i­cally cost the mil­len­nial just R186 a month, Dis­cov­ery says.

Life and dis­abil­ity cover gets more ex­pen­sive as you get older, so it’s in your in­ter­ests to take out such cover ear­lier rather than later.

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