South Africans have too little life and disability insurance

The most recent study on life and disability cover from the Association for Savings and Investments of South Africa (Asisa) indicates that the premature death of a breadwinner, or an accident which renders him invalid, will be a real disaster for most families in South Africa. The typical employee simply does not have enough life insurance and disability coverage.

Working with national statistics and the total amount of prevailing life and disability cover in the industry, Asisa calculated that the average worker in South Africa should have at least R1 million more life insurance than he currently has none, to avoid his household having to cut living expenses. 30% if the working spouse dies or becomes disabled.

The study defined disability as the total and permanent disability of an active worker and the disabled person is unlikely to return to work.

“The average South African income had a life insurance gap of at least R1 million and a disability coverage gap of around R1.4 million at the end of December 2021,” according to the findings of the 2022 Life and Disability Insurance Gap Study published by Asisa in partnership with True South Actuaries & Consultants.

The study found that the 14.3 million wage earners in South Africa only had enough life and disability insurance to cover 45% of their total household needs.

Thus, the average SA household supported by at least one breadwinner would be forced to reduce its living expenses if the breadwinner died or became disabled and no other source of income could be found.

Statistics regarding SA’s notoriously high debt levels and the highest rate of inflation in decades indicate that many households would be devastated if something serious were to happen to the head of the household.

Asisa conducts life and disability insurance gap research every three years. The insurance gap is defined as the difference between the life and disability insurance coverage a person has in place and the actual amount required by a household to maintain the same standard of living after the death or permanent disability of the economic support.

In addition to the noted shortfall highlighted in the research, Asisa notes that the need for capital and income after a risky event excludes immediate event-related expenses such as funeral expenses, medical expenses and the cost adaptation of a house and a car to the needs. of a disabled person.

Hennie de Villiers, vice-chairman of Asisa’s life and risk committee, says the aggregate insurance needs of South African households stood at around R62.9 trillion at the end of December 2021. SA has a full insurance coverage instead of just R28.6 trillion. – leaving an insurance gap of R34.3 trillion.

“To give context to the scale of the insurance gap in South Africa, consolidated public expenditure for the year 2022/23, as announced in the 2022 budget, amounts to R2.16 trillion, of which R1.3 trillion is allocated to social spending.

“This means that the R34.3 trillion insurance gap exceeds the national budget by about 15 times and government social spending by more than 26 times,” he says.

Biggest gap

The Asisa study also shows that the insurance gap has increased over the past three years, if only marginally, by 0.2% per year since 2018.

De Villiers says the increase in the gap is worse than the small annual increase between 2018 and 2021 indicates.

“There is no cause for celebration. In the three years since the last gap study, the country’s employees have fallen from 15.6 million employees at the end of 2018 to 14, 3 million by the end of 2021.

“This means that 1.3 million people have stopped earning an income. Since the gap study calculates the amount of life and disability coverage needed to cover a loss of income following the death or disability of a breadwinner, a drastic reduction in the number of breadwinners therefore also decreases the calculation. of the need for insurance”, explains De Villiers.

“The three-year period since the insurance gap was measured at the end of 2018 included the two years in which the Covid-19 pandemic led to unprecedented economic hardship, which caused significant job losses.

“However, the pandemic has also underscored the importance of having risk coverage in place like few other events in SA’s history. During this period, many life insurers paid the highest number of claims in their history,” says De Villiers.

Presenting the research, Asisa said more than 1.98 million death requests were received in the 24 months from early April 2020 to late March 2022, the period that spanned all four waves of Covid-19.

Life insurers paid benefits of R120.5 billion to beneficiaries who submitted these death claims.

“While these payments undoubtedly helped ease the financial burden of such a tragic event, the gap study demonstrates that in many cases the payment would not have been sufficient. Many families likely had to make difficult financial adjustments at a time when they also had to deal with the loss of a loved one,” according to De Villiers.

Tragedies are not age specific

In 2021, life insurers noticed an increase in consumer uptake of new risk policies and a decline in policy lapse rates for the first time in many years. Despite this, Asisa says the study proves that the gap between life insurance and disability insurance is widening.

“Insurance is a grudge purchase for many employees because there is no immediate tangible return for the money spent.

“Young people, in particular, tend to think that death and disability only affect older people and are therefore less likely to spend their hard-earned money on insurance premiums.

“But Covid-19 has highlighted that tragic life events are not differentiated by age,” says De Villiers.

Asisa cites figures from a 2021 study by the Actuarial Society of South Africa’s (ASSA) Continuing Statistical Inquiry Committee (CSI) which showed the impact of Covid had been surprisingly similar across all groups of people. age. The number of claims against fully underwritten life insurance policies nearly doubled for young lives as well as for older people.

Young employees most at risk

According to actuarial statistics, more than 500 families – young and old – are likely to experience death or disability at any time this year.

WS Nel, head of actuarial research at True South Actuaries & Consultants, says studies using ASSA models have estimated that more than 142,000 people on fixed incomes will die this year and around 47,000 people on fixed incomes will become disabled.

He refers to the findings of the Asisa study, which show that employees under the age of 30 are the most likely to face a substantial life and disability deficit, followed by employees aged 30 to 39.

“Given that eight million of South Africa’s 14.3 million employees are under the age of 40, the majority of employees in the country are likely to be grossly underinsured.

“Employees under 30 face an average insurance gap of R1.6 million for life cover and R1.7 million for disability. Employees aged 30 to 39 face life insurance shortfalls of R1.4 million per employee and R1.8 million in the event of disability.

“In addition, young people and their young dependents are expected to rely on their insurance income for much longer after death or disability than older employees nearing retirement,” says Nel, noting that the needs of Insurance in younger age groups is generally higher than in older groups.

He points out that the insurance gap narrows significantly for employees over 50 and that older workers are likely to have more life cover than necessary and their disability insurance gap is much smaller.

“Older workers have often paid off their mortgage obligations and paid for their children’s education, reducing the need for life and disability coverage. Their concerns then turn to whether sufficient provision has been made for post-retirement income,” says Nel.

Close the gap

He says it’s usually easier and often cheaper for people to fill the insurance gap before death or disability forces the family to find ways to make up for the lost income.

“The average earner would need to spend an additional 4.5% of their monthly pre-tax income to purchase adequate life insurance. However, without adequate life insurance 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 a breadwinner or alternatively reduce household expenses. 30% cleaning.

“Disability of a breadwinner would require the average family to generate an additional monthly income of R7,443 to maintain their standard of living or reduce household expenditure by 33%.

“The additional income required by a household following the permanent disability of a breadwinner is higher than upon the death of a breadwinner, because the disabled family member still incurs expenses until retirement “Nel explains.

Ironically, the cost of purchasing additional disability coverage is generally lower than life insurance.


Not surprisingly, Asisa’s study found that life and disability coverage differs between different population groups.

Workers in Limpopo, one of South Africa’s poorest provinces, have the lowest life and disability insurance coverage, at just 26% and 32% respectively. The highest coverage is in place in the Western Cape, with 56% adequacy for life cover and 54% for disability cover.

Women seem to be more responsible, and the life and disability insurance gap is slightly lower for women across SA.

Employees with a higher level of education also benefit from the highest insurance coverage. The Asisa Insurance Gap study shows that employees with college degrees covered at least 76% of their life coverage needs and 58% of their disability coverage needs.

The life insurance deficit is greatest for employees who have not completed their studies. However, many of these employees would have at least 50% of their disability coverage needs covered, largely through government disability benefits.

About Antoine L. Cassell

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