Insurance Gap Study
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During the course of next year (2011/2012) some 160 000 South African income earners are expected to die, while an estimated 52 000 earners will suffer total and permanent disability. This means that in addition to grappling with the loss of these income earners, around 212 000 families will face unexpected financial hardship next year brought about by underinsurance.
New research conducted by True South Actuaries and Consultants on behalf of the Association for Savings and Investment South Africa (ASISA) shows that the average South African income earner is underinsured by about 62% for death and 60% for disability. The harsh result of this is that the average family would have to cut living expenses significantly if the main earner of a household dies or becomes totally disabled.
Given the rich diversity of the South African population, it is instructive to view the results of the study for the average earner in different income groups, as shown by the tables below (separately for life cover and disability cover):
Life cover
| Personal Income per month after tax | Life Insurance Required | Actual Cover | Life Insurance Gap |
|---|---|---|---|
| R0-R3 000 | R133 372 | R7 318 | R126 054 |
| R3 000-R5 800 | R483 301 | R65 628 | R417 674 |
| R5 800-R8 300 | R800 628 | R167 138 | R633 490 |
| R8 300-R16 700 | R1 408 200 | R431 635 | R976 565 |
| R16 700+ | R3 325 942 | R1 802 173 | R1 523 768 |
Disability cover
| Personal Income per month after tax | Disability Insurance Required | Actual Cover | Disability Insurance Gap |
|---|---|---|---|
| R0-R3 000 | R235 744 | R284 346 | -R48 602 |
| R3 000-R5 800 | R777 277 | R325 728 | R451 548 |
| R5 800-R8 300 | R1 270 763 | R385 047 | R885 716 |
| R8 300-R16 700 | R2 227 830 | R621 934 | R1 605 896 |
| R16 700+ | R5 309 603 | R2 103 374 | R3 206 229 |
Francois Hugo, Executive Director at True South Actuaries and Consultants, points out that the study took a conservative approach, taking into consideration only the levels of life and disability cover required to maintain ongoing household spending after the death or disability of an earner and then only for the period up to the earner's intended retirement date. One-off costs such as funeral costs, executor fees, estate duty and capital gains tax were therefore excluded, as were post-retirement living expenses.