Life cover short­fall reaches R28 trillion

The fam­i­lies of most South Africans will not be able to main­tain their stan­dard of liv­ing if the bread­win­ner dies pre­ma­turely. re­ports

Weekend Argus (Saturday Edition) - - FRONT PAGE -

THE fore­most ques­tion in any bread­win­ner’s mind should be whether his or her de­pen­dants will be able to main­tain their stan­dard of liv­ing if he or she were to be­come dis­abled or die be­fore re­tire­ment. For many South Africans, the an­swer to this ques­tion is less than en­cour­ag­ing.

Ac­cord­ing to the lat­est statis­tics from the As­so­ci­a­tion for Sav­ings & In­vest­ment South Africa (Asisa), South Africans have a to­tal as­sur­ance short­fall of R28.8 trillion. This short­fall is the dif­fer­ence be­tween the pro­tec­tion we should have and the pro­tec­tion we do, in fact, have. Even more alarm­ingly, this “pro­tec­tion gap” has in­creased by R4.8tn since 2012.

Other salient numbers from the Asisa re­port are:

• Death cover: all in­come earn­ers should have as­sur­ance of R20.2tn, and the short­fall is R12.9tn; and

• Dis­abil­ity cover: the as­sur­ance need for all earn­ers is R28.9tn, while the short­fall is R16tn.

Jo­han Min­nie, the group ex­ec­u­tive of sales, dis­tri­bu­tion and ban­cas­sur­ance at Lib­erty, says: “Many peo­ple be­lieve that mis­for­tunes won’t hap­pen to them, but these statis­tics high­light the im­por­tance of life as­sur­ance. A shock­ing event, such as the death of a bread­win­ner, can see a fam­ily’s en­tire as­set base dec­i­mated.”

Lib­erty’s claim statis­tics for 2016 show that it paid out R4.3 bil­lion in valid claims, 13% more than 2015. This amounts to a claim being paid ev­ery eight min­utes, or R17 mil­lion paid out ev­ery work­ing day.

The Asisa re­port also shed light on how dif­fer­ent age groups make as­sur­ance de­ci­sions, with the younger gen­er­a­tion being the ones at most risk of being un­der-as­sured. The re­ports found that:

• Earn­ers aged be­tween 30 and 39 typ­i­cally need life cover of R1.8m to en­sure that their house­hold will be able to main­tain its stan­dard of liv­ing af­ter the earner’s death. But these earn­ers typ­i­cally have life cover of less than R500 000, leav­ing an av­er­age as­sur­ance gap of more than R1.3m.

• There is no as­sur­ance gap for earn­ers of 55 or older, which means that earn­ers in this age group are more likely to be over-as­sured than un­der-as­sured.

• Low-in­come earn­ers are less likely to need dis­abil­ity as­sur­ance, be­cause the state’s dis­abil­ity grant will cover most, or all, of their needs.

• The top 20% of earn­ers need life cover of about R4.5m. Typ­i­cally, these earn­ers have life cover of R2.1m, leav­ing a gap of R2.4m.

David Kop, the head of pub­lic pol­icy and con­sumer af­fairs at the Fi­nan­cial Plan­ning In­sti­tute, says it is when times are tough that the true value of hav­ing a pro­fes­sional fi­nan­cial plan­ner is re­alised.

“You may be con­sid­er­ing cut­ting back on ex­penses such as life cover to make ends meet. How­ever, this can be detri­men­tal to your fi­nan­cial plan. This is where you should sit down with your fi­nan­cial plan­ner to help re­struc­ture your budget and make in­formed de­ci­sions on how to man­age your cur­rent spend­ing, while pro­vid­ing for your fu­ture spend­ing,” Kop says.


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