The financial landscape in South Africa reveals a staggering shortfall in life and disability insurance, amounting to an estimated R34.3 trillion. This alarming figure highlights the urgent need for improved insurance coverage among the country’s income earners, as revealed by the 2022 Life and Disability Insurance Gap Study conducted by the Association for Savings and Investment South Africa (ASISA) and True South Actuaries and Consultants.The Current Insurance Landscape As of December 2021, the average South African income earner faced a life insurance shortfall of at least R1 million and a disability cover gap of around R1.4 million. With only 45% of the total insurance needs covered, many households would struggle to maintain their living standards if their primary breadwinner were to die or become disabled.The study indicates that 14.3 million income earners in South Africa collectively require R62.9 trillion in insurance coverage to secure their families' futures. However, with current coverage at just R28.6 trillion, the resulting gap is not only significant but also growing, albeit marginally at 0.2% per annum since 2019.
Economic Context
To put this gap into perspective, consider that it exceeds the national budget by approximately 15 times, with social spending alone being outstripped by more than 26 times. The economic hardships exacerbated by the COVID-19 pandemic have led to a decline in income earners—from 15.6 million in 2018 to14.3 millionin 2021—further complicating the insurance landscape. The Impact of COVID-19 The pandemic has underscored the importance of having adequate risk cover. During its peak, life insurers processed nearly 2 million death claims, disbursing around R120.5 billion to beneficiaries. Despite these payouts alleviating some financial burdens, many families still faced difficult adjustments due to insufficient coverage.
Demographics of Underinsurance
The study reveals that younger earners, particularly those under 30, are disproportionately affected by underinsurance:
Earners under 30 face an average life cover shortfall of R1.6 million and a disability gap of R1.7 million.
Those aged 30-39 have similar gaps, with life insurance shortfalls averaging R1.4 million.
In contrast, older earners tend to have more adequate coverage as they approach retirement age, reducing their insurance needs.
Age Group | Life Cover Gap | Disability Cover Gap | Total Insurance Gap |
Under 30 | R1.6 million | R1.7 million | R3.3 million |
30 to 39 | R1.4 million | R1.8 million | R3.2 million |
40 to 49 | R1 million | R1.3 million | R2.3 million |
50 to 54 | No gap | R0.6 million | R0.6 million |
55 and older | No gap | R0.1 million | - |
Closing the Insurance Gap
Addressing this significant shortfall is crucial for families' financial stability. The average earner would need to allocate an additional 4.5% of their monthly pre-tax income to secure adequate life insurance coverage. Conversely, without sufficient protection, families would need to generate an additional monthly income of approximately R5,630 following a death or reduce household expenditures by about 30%. For disability coverage, the financial burden is even greater; families may need an extra R7,443 monthly or face a 33% reduction in spending.
Conclusion: A Call to Action
The findings from ASISA's study serve as a wake-up call for South African earners to reassess their insurance needs critically. With a significant portion of the population underinsured, especially younger individuals who often overlook the importance of life and disability cover, it is essential to prioritize securing adequate protection before unforeseen circumstances arise.As we navigate an uncertain economic landscape marked by potential risks, ensuring that you and your family are adequately covered is not just wise—it's essential for safeguarding your future against life's unpredictable events.
For those looking to navigate the complexities of insurance and ensure their financial future is secure, Lebon Consulting is here to help. Our team of experts specializes in providing tailored insurance solutions that meet your unique needs.If you're interested in obtaining a Consolidated View of your Insurance Portfolio, simply reach out to us via our dedicated WhatsApp line (https://api.whatsapp.com/send?phone=27616038091). We’ll guide you through the process, helping you assess your coverage and identify any gaps. Don’t leave your financial security to chance—contact Lebon Consulting today and take the first step towards a more secure tomorrow!
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