Millennials’ insurance shortfall
Prinesha Naidoo
Millennials in South Africa face an insurance shortfall of R15 trillion largely due to lifestyle and attitude factors, new research by Discovery Life shows.
The research is based on a 2016 Insurance Gap study by the Association for Savings and Investment in South Africa (Asisa), which pegged the insurance gap for young adults at R9 trillion, of which R4.89 trillion related to disability cover and the remaining R4.1 trillion to life cover.
The insurance gap is the difference between cover needed and actual cover held.
In accounting for an increase in life expectancy, a high rate of income growth among millennials due to successive and quick promotions or job changes, and delayed family formation among other factors, the insurance group found that the 2016 study underestimated the insurance gap among 18 to 34 year olds.
Per Discovery’s calculations, the insurance gap widened to R15 trillion, with disability shortfall of R9.4 trillion and a death shortfall of R5.5 trillion.
Citing the low level of savings and high incidence of debt, Discovery Life’s head of research and development Gareth Friedlander says the ultimate need for cover is to protect future income.
He points out that around a third of millennials have some form of long-term savings while 46% have no savings at all. At the same time, 64% of millennials have personal loans giving rise to a debt-to-income ratio of 73%.
Interestingly, the research proves that factors such as delayed family formation, which some millennials use as a reason to discount the need for insurance, hold little to no weight.
“In line with the trend to get married later in life, millennials need to protect a far greater portion of their income on disability,” says Friedlander.“They need a higher replacement ratio as the proportion of their household income that will be missed after disability is effectively 100%.”
Changing just the replacement ratio to 100% sees the disability insurance gap jump 72% to R8.4 trillion, which is equivalent to an average of R2.4 million per earner.