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New data from the Association for Savings and Investment South Africa (ASISA) shows that South Africa has a massive insurance gap, with individuals unable to fully cover themselves or their dependents in the event of death or disability.
The latest 2022 Life and Disability Insurance Gap Study from ASISA revealed the average South African income earner has a life insurance shortfall of at least R1 million and a disability cover gap of around R1.4 million.
It went on to show that 14.3 million income earners only had enough life and disability insurance to cover 45% of the total insurance needs of their households.
As a result, the average South African household supported by at least one income earner would, therefore, be forced to cut living expenses should the earner die or become disabled, and no other source of income can be found, said ASISA.
In terms of the insurance gap – the difference between life and disability insurance coverage in place and the actual amount required by households to maintain the same standard of living after the death or permanent disability of an income earner – the country’s overall total amounted to R34.3 trillion.
Hennie de Villiers, deputy chair of the ASISA Life and Risk Board Committee, said that the combined household total of insurance that is needed amounts to R62.9 trillion.
De Villiers said that the current total insurance gap signifies a marginal widening in the already large gap when compared to the 2019 findings of 0.2% per annum.
To highlight the sheer size of the insurance gap, De Villiers provided the consolidated government expenditure for 2022/23 as an example. The budget amounts to R2.16 trillion, of which R1.3 trillion is allocated to social spending.
“This means that the insurance gap of R34.3 trillion exceeds the National Budget by around 15 times and the government’s social spending by more than 26 times,” said ASISA.
According to De Villiers, despite the widening gap, the 2022 Gap Study showed an average annual growth of 5.5% in life cover over the three years to the end of December 2021, while disability cover increased by 2% per annum. Therefore, combined with the effect of losing 1.3 million income earners, the widening of the insurance gap was small, said De Villiers.
However, while the widening of the insurance gap was marginal, the actual gap remains significant and will mean that many South African families will face severe financial hardship should their main breadwinner die or become disabled.
Who suffers most
Earners under 30 are most likely to be underinsured, says ASISA. “Income earners under the age of 30 are most likely to face a substantial life and disability shortfall, followed by earners between the ages of 30 to 39.”
Since eight million of South Africa’s 14.3 million earners are younger than 40 years, the majority of the country’s earners are likely to be significantly underinsured, said ASISA.
The table below shows the life and disability insurance gap per age group on 31 December 2021:
Under 30 30 to 39 40 to 49 50 to 54 55+ Earners 3.7 million earners 4.3 million earners 3.7 million earners 1.4 million earners 1.3 million earners Life cover gap per earner R1.6 million R1.4 million R1 million No gap No gap Disability cover gap per earner R1.7 million R1.8 million R1.3 million R0.6 million R0.1 million Total insurance gap per earner R3.3 million R3.2 million R2.3 million R0.6 million R0.1 million Closing the gap
The loss of an earner without adequate life and disability cover could have devastating financial implications for families, said ASISA. As a result, it is best practice to close your insurance gap before death or disability.
According to the group, the average earner would need to spend an additional 4.5% of their monthly pre-tax income to purchase adequate life insurance.
“Without adequate life cover in place, the average family would be forced to generate an additional monthly income of R5,630 to maintain their standard of living following the loss of an income earner or alternatively reduce household expenditure by 30%.”
ASISA said the disability of an income earner would force the average family to generate an additional monthly income of R7,443 to maintain their standard of living or alternatively reduce household expenditure by 33%.
“Closing the gap, on the other hand, would cost the income earner an additional 2.6% of their pre-tax monthly income.”
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