The gap in life insurance and disability cover in South Africa now stands at R34.3 trillion – fifteen
times the size of the country’s national budget.
Most South African households would have to make drastic changes to their standard of living if the
main income earner were to die or become disabled, as a new report shows that there is an
enormous gap in the insurance cover of the majority of South African households.
There are 14.3 million income earners in South Africa, and between them, they only have enough
life and disability insurance to cover 45% of the total insurance needs of their households. The insurance gap represents the difference between the cover the above households have in place,
and the actual costs they would incur to maintain their lifestyle should the main income earner die
or become disabled.
These findings were released by the Association for Savings and Investment South Africa (ASISA)
who released their 2022 Life and Disability Insurance Gap study on 2 November.
Number of SA income earners dropping
One of the disturbing findings mentioned in the study is the reduction in the number of income
earners in South Africa between 2018 and 2021. In 2018 there were 15.6 million income earners in
the country, and by the end of 2021, only 14.3 million. There has been a corresponding widening of
the insurance gap during this period of 0.2%.
The reduction in the number of income earners means that one in every 12 people lost their jobs
during this period – undoubtedly some of these losses were pandemic-related. According to Statistics South Africa, the figures are even worse for those under the age of 30: during
the same period one in every seven employed people lost their jobs. And for those South Africans
with the lowest income levels and lowest levels of education, the number is even more disturbing:
one in three.
A shortfall of 55% in cover
With only 45 of life insurance and disability insurance needs taken care of in the households that
contain an income earner/breadwinner, it means there is an average shortfall of 55%. For the
average household, the shortfall of cover translated to R1m in the case of death, and R1.4m in the
case of disability. The biggest life insurance and disability shortfall is in the category of income
earners under the age of 40.
And it is not just in the lowest income categories that there is a shortfall: in the top income group (if
one divides income earners into five groups of 2.9 million each), where the earner’s income is more
than R246 923 per year, the life insurance needs would be in the region of R5.3 million, but the
current cover is only for R3.2 million.
As a result of lower household expenditure, the shortfall in life insurance for the other four income
categories ranges between R100 000 (the lowest category with a household income of under
R33155 per year) to R1.4 million for those households where the income is less than R246922 per
annum.
The gap in disability cover is even greater than the life insurance gap, as mentioned above. Disability
insurance is, on the whole, cheaper than life insurance – especially for younger people. When a
breadwinner becomes disabled, not only does the household lose income, there are also often extra
medical expenses to cover for that person.
Many of the poorest households are, however, partially covered by the government disability grant.
The spiralling cost of living and rising unemployment are putting many households under pressure,
which has a knock-on effect on the amount of life and disability cover income earners have.
But it might be easier in the long run to pay for cover, than to try and find other sources of income at a later stage to maintain one’s standard of living, should the main income earner die or become
disabled.