South Africans are under-insured for death‚ disability

Disability cover for South Africans is hopelessly inadequate. Image: Marin Free Digital Photos

The life assurance shortfall for the 13m earners in SA aged between 15 and 65 is R9.3trn while the gap in disability cover is R14.7trn‚ an independent study commissioned by the Association for Savings and Investments South Africa (Asisa) shows.

Speaking at the release of the study's results‚ Asisa's deputy chief executive Peter Dempsey said South Africans earning more than R150‚000 a year were the most critically under-insured.

"The insurance gap increases steeply as income increases‚ because the higher an earner's income bracket‚ the more life and disability cover is required to maintain living standards should the earner die or become disabled‚" Dempsey said.

If an earner in this income bracket died‚ his household would need to find an additional R10‚000 a month to make up the shortfall. If the earner were disabled‚ the household would have to find another R20‚000 a month to plug the gap‚ or cut household spending by 46%.

R80.3bn paid in death cover in three years

Between 2010 and 2012‚ the South African assurance sector paid out R80.3bn in death cover and R22bn for disabilities.

Too few South Africans have life assurance, with serious consequences for the family and the economy. Image: Grant Cochrane Free Digital Photos

Dempsey said that life assurance for the poor was as important as it was for the rich. "As part of government policies‚ access to life assurance is one of the key ways to get people out of poverty‚" he said.

Household members who lose an income earner to death or disability can be set back generations and this can have a knock-on effect on the economy. "The loss of every income earner has the potential of reducing the financial well-being of a wider group of people and ultimately this impacts on the country as a whole‚" he said.

The insurance gap was calculated separately for death and disability and was defined as the difference between the insurance need and the actual cover.

The study‚ conducted by True South Actuaries and Consultants and the Unisa Bureau of Market Research‚ found the life cover shortfall for the average South African earner is R700‚000 and the disability shortfall is R1.1m.

Under-insurance levels growing

The study is conducted every three years and in 2007 found earners were under-insured by about R10trn. In 2010‚ they were under-insured by R18.4trn. Dempsey was concerned the gap was now R24trn‚ showing no real improvement since the study was first conducted. The study found the lowest-income earners - those earning less than R1‚500 a month - would not need disability cover as the government's disability grant would replace lost income.

"The only group found to have sufficient cover were high earners older than 55‚" True South executive director Francois Hugo said. The better educated the earner‚ the higher their cover‚ he said.

The study looked at 13m South Africans aged between 18 and 65 who earn a regular income‚ based on data from Statistics SA.