The 2016 Life and Disability Insurance Gap study, conducted on behalf of the Association for Savings and Investment South Africa (ASISA) by True South Actuaries and Consultants, highlights concerning statistics.
South Africans face a combined insurance shortfall of R28,8 trillion. This is the amount of insurance cover needed to meet the gap between the total existing life and disability insurance cover in place currently, and what’s required to make sure all working South Africans have sufficient cover to provide for their families if they died or were unable to work.
What’s concerning is that the insurance gap has been widening since 2012. It’s increased by R4,8 trillion over the last five years. The concern is that an unexpected event, such as the death of a breadwinner, can leave a family’s entire asset base decimated.
When it comes to life insurance, ultimately, someone pays. Either you pay the premiums so that you have cover or your family suffers the financial consequences if you don’t have life cover in place.
Income earners with annual salaries of between R100 000 and R215 000 are under-insured by R1,2 million. That means that if the breadwinner dies, the family would either need to find an extra R6 349 per month or reduce their monthly household expenses by 38%.
Individuals earning more than R215 000 a year are, on average, R2,4 million under-insured. This means that if they die, the family would need R12 874 after tax or would have to reduce their spending by 36%.
The gap is significantly higher for disability as the living expenses of the income earner would have to be taken into account. The study found that if an individual earning R215 000 a year or more was unable to earn an income due to a disability, the average level of under-insurance means the family would have to find an additional R17 000 per month.
Your long-term insurance is essential during a recession
As the country grapples with the fact that it has entered into a technical recession, it’s more important now than ever before to take your insurance cover seriously. Too many South Africans think about insurance as a grudge purchase, when it really acts more like an investment that cashes in when uncertainties arise and risks become realities. The last thing you should be doing is cutting your insurance cover while waiting for the storm to pass.
Financial advisers have an important role to play in prioritising spending, creating peace of mind, confidence and a feeling of security in their customers by covering four essential pillars of risk: life protection, loss of income protection, lifestyle protection and policy protection.
If you’re concerned that you may be under-insured, meet with your financial adviser today. Here are three key steps to prepare for your meeting.
1. Make a list of your financial goals.
Each customer’s financial goals are unique. In setting financial goals, customers must consider their age, retirement needs, lifestyle requirements, debt levels and personal risks. It’s important to be realistic in setting financial goals so that the financial adviser can provide the right level of advice to make the goals achievable.
2. Formulate questions for your financial adviser.
To get the highest level of value from the financial adviser, customers should prepare a list of pertinent questions related to their current financial situation and future planning needs. These questions should cover debt reduction, retirement planning, investment time lines and risk mitigation.
3. Prepare all important documents for the meeting.
For the financial adviser to provide the best level of advice, customers should bring bank statements, insurance policy documents, tax certificates, estate planning information and any other important financial documents related to the financial planning process. to draw down on longer-term savings or rely on emergency short-term debt. This increases your financial vulnerability and therefore your financial risk.
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