HOW MUCH IS ENOUGH?

South African families are underinsured against the death or disability of their breadwinners by nearly 60 percent. As a result, they will have to cut their living expenses by 30 percent or more if the breadwinner dies or becomes disabled.

On average, it costs 4.2 percent of after-tax income to buy adequate life cover, while it costs 2.4 percent of net income to take out sufficient disability cover. The lowest 20 percent of income-earners need, on average, to set aside an additional 4.1 percent of their income to buy enough life cover; middle-income earners need to spend close to seven percent; and the top earners need to spend, on average, another 3.3 percent of their income.

High-income earners could remove the shortfall in their disability cover by spending two percent of their net income, while middle-income earners need to spend as much as 3.6 percent.

Peter Dempsey, the deputy chief executive of the Association for Savings & Investment South Africa (Asisa), says many consumers do not invest in adequate financial protection, because they believe life assurers do not pay claims. But Asisa’s statistics show that assurers honour the overwhelming majority of claims on underwritten policies (where you have to answer questions about your health or undergo medical tests).

Last year, life assurers paid out R45.5 billion in life and disability claims, a claims ratio of 99 percent.

Dempsey says that, where claims were not paid, it was mostly because policyholders had not been honest when disclosing details about their health or lifestyles.

The claims statistics for nonunderwritten policies are not known.