South Africans are dangerously underinsured. According to the 2022 Life and Disability Insurance Gap Study by the Association for Savings and Investment South Africa (ASISA), the average income earner had a life insurance shortfall of at least R1 million and a disability cover gap of around R1.4 million by the end of 2021.
The study looked at South Africa’s 14.3 million income earners and found that, on average, they only had enough life and disability insurance to cover about 45% of their household’s financial needs if the breadwinner passed away or became permanently disabled. The impact of this shortfall is severe: families would be forced to make drastic cuts to their standard of living, especially if there’s no other source of income to fill the gap.
To make matters worse, the number of South Africans with life insurance is shrinking. According to the Financial Sector Conduct Authority’s 2022 Financial Sector Outlook Study, only about 10% of consumers had life cover (excluding funeral policies). This leaves a large portion of the population financially vulnerable.
What is the “Insurance Gap”?
ASISA, together with True South Actuaries & Consultants, calculates this insurance gap every three years. It represents the difference between the cover people have and what they need to maintain their family’s standard of living after a death or disability. Importantly, the gap doesn’t even factor in one-off costs like funerals, medical bills or home modifications for a disability – it only focusses on long-term living costs.
How Do You Know How Much Cover You Need?
There’s no one-size-fits-all answer. The amount of life or disability cover you need depends heavily on your personal circumstances. For example, a 35-year-old with a spouse and two children would need significantly more cover than a retired 65-year-old widower.
A good place to start is to ask yourself what it would take to support your family if you were no longer earning an income? If disability strikes, the financial needs can be even more complex. Beyond losing your income, you may need to renovate your home for accessibility, modify or replace your car and fund ongoing care. This is where capital disability cover and income protection become essential.
Why Your Life Cover must Change as Life Changes
Too many people buy life insurance once and forget about it. But life changes – marriage, children, buying a home, starting a business or even divorce – all affect how much cover you need. Life insurance isn’t a fixed number. It should evolve as your responsibilities do.
Also, the idea that your family’s costs will drastically drop if you pass away is misleading. Studies show that for a family of four, household expenses only decrease between 10 and 30% if one spouse dies. This means the surviving family still needs to cover at least 70% of previous expenses, which can be nearly impossible without adequate cover.
The Role of Financial Planning
A good financial planner will help you strike a balance. The goal isn’t to be over-insured (which wastes money you could invest), but to be appropriately insured for your current life stage and risks. The right cover ensures your family / dependents are financially protected if you’re no longer able to provide.
In short, life cover is not about fear, it’s about preparation. It’s a financial safety net, a cushion that allows your family to maintain their lifestyle and dignity during the hardest moments of their lives. It’s not just about death; it’s about life and ensuring your family’s well-being after your passing.
Do you want help calculating your ideal life cover based on your current situation? At Consolidated Wealth, we will help you find the right balance when it comes to life and disability cover. Our financial planners take the time to understand your personal circumstances, financial goals and future responsibilities, then tailor a strategy that ensures you’re neither underinsured nor paying for cover you don’t need. With expert guidance, we help you protect what matters most – your family’s financial future – while making sure your insurance works as part of your broader wealth plan.
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By Daniel Trevethan CFP®
Internal Advisor: Consolidated Wealth
