Study shows that millions of South Africans need to close the ‘insurance gap’

The recently released 2022 Life and Disability Insurance Gap Study shows a significant gap in the average South African income earners requiring life and disability insurance cover. These findings serve as a reminder to consumers that proper financial planning, even in tough economic times, is a necessity and not a luxury. The study measures the extent of life and disability coverage under-insurance in South Africa[2].

Simply put, the Insurance Gap is the difference between the amount of insurance cover people should have to maintain their lifestyles after a death/disability event versus the amount of cover that they do have[3]. The Life and Disability Insurance Gap Study, produced by the Association for Savings and Investment South Africa (ASISA), showed that the average South African income-earner ­– as reflected in the study ­– had a life insurance shortfall of at least R1 million and a disability cover gap of about R1.4 million, as at the end of December 2021[4].

Lessons to be learned

The life and disability insurance gap is estimated every three years by ASISA in partnership with True South Actuaries & Consultants. It shows that South Africa’s 14.3 million income-earners included in the study had enough life and disability insurance to cover only 45 percent of the total insurance needs of their households.

This means, in real terms, that for the average household supported by at least one income earner, living expenses would have to be cut if the earner died or became disabled, and no other source of income could be found. The study shows key focus areas and highlights the insurance needs of income earners of different ages, genders, and living in different provinces.

When looking at the need for disability coverage, age is especially important in understanding your needs. The table below shows the insurance requirement for disability cover – reflected as a lump sum – for different age bands.

Traditional life insurance solutions are out of sync with policyholders’ needs

While your disability needs are higher the younger you are, the most common permanent disability cover structure available in the market is a lump sum that starts out low and increases every year.

– However, this structure behaves the opposite to the trajectory of the insurance need.
– The Gap Study shows that policyholders end up reducing this cover in the future, when they get closer to retirement age.
– This means that, with these traditional structures, policyholders are simply not getting cover that meets their needs.

Policyholders are wasting money paying for cover that they’re not going to keep
In a country and an economic era where many are struggling financially, paying too much for anything that you do not need is not good financial advice.

One of the factors that contribute to the premium that policyholders pay for any insurance coverage is how long they want to keep the coverage, and if they want it to increase over time.

The longer the period of cover, and the more the cover increases, the higher the premium payable from day 1.
However, if policyholders are canceling their cover once they start getting closer to their retirement age, they’re wasting premiums by paying too much from day one for cover that they never needed and that they’re not going to keep.

BrightRock offers a solution.

Needs-matched life insurance product

Our product is designed to match your needs initially and change with them as your needs change, by offering a more efficient pricing model. We have disability cover that’s designed to protect your income until you retire.

– We give claimants the choice – at the claim stage – to be paid those monthly incomes until they would have retired, perfectly covering the need.
– Instead of recurring payments, you can also decide to take the present value of those future incomes as a lump sum payment upfront.

We offer this choice at the claim stage because this is the point at which the policyholder knows best what their prognosis is – for example, has life expectancy been shortened by the illness or injury, or not? – and what their financial situation is.

– Offering this lump sum also makes it clear to policyholders and claimants the magnitude and behaviour of their actual financial need that’s being covered.
– The lump-sum amount will be far higher at a younger age, with more pay cheques to protect, and far lower the closer to retirement age. This gives you a lot more when your need is the highest, closing the insurance gap.

BrightRock’s efficient pricing model considers these changing needs over time and enables policyholders to buy up to double the cover now than they would be able to purchase with a traditionally structured product. As a financial adviser, this, therefore, enables you to offer your clients more cover when they need it most. As much as this applies to disability needs, it also applies to death needs, although there is a smaller need for final expenses that extends for the full life of the policyholder.