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Millennials face R15 trillion insurance shortfall

Invincibility complex and present bias may come back to bite, new research shows.

Millennials in South Africa face an insurance shortfall of R15 trillion largely due to lifestyle and attitude factors, new research by Discovery Life shows.

The research is based on a 2016 Insurance Gap study by the Association for Savings and Investment in South Africa (Asisa), which pegged the insurance gap for young adults at R9 trillion, of which R4.89 trillion related to disability cover and the remaining R4.1 trillion to life cover. The insurance gap is the difference between cover needed and actual cover held.

In accounting for an increase in life expectancy, a high rate of income growth among millennials due to successive and quick promotions or job changes, and delayed family formation (marriage and parenthood) among other factors, the insurance group found that the 2016 study underestimated the insurance gap among 18 to 34-year olds. Per Discovery’s calculations, the insurance gap widened to R15 trillion, with disability shortfall of R9.4 trillion and a death shortfall of R5.5 trillion.

Citing the low level of savings and high incidence of debt among millennials, Discovery Life’s head of research and development Gareth Friedlander says the ultimate need for cover is to protect future income. He points out that around a third of millennials have some form of long-term savings while 46% have no savings at all. At the same time, 64% of millennials have personal loans giving rise to a debt-to-income ratio of 73%.

Interestingly, the research proves that factors such as delayed family formation, which some millennials use as a reason to discount the need for insurance, hold little to no weight. “In line with the trend to get married later in life, millennials need to protect a far greater portion of their income on disability,” says Friedlander. “They need a higher replacement ratio as the proportion of their household income that will be missed after disability is effectively 100%.” According to Discovery Life, changing just the replacement ratio to 100% sees the disability insurance gap jump 72% to R8.4 trillion, which is equivalent to an average of R2.4 million per earner.

So why aren’t millennials investing in disability and life cover?

Millennials, by engaging in risky behaviour such as using cellphones while driving, exhibit an “invincibility complex” and, in an age of instant gratification, show a “present bias and allergy to long-term planning,” says Friedlander.

Discovery Life’s study also found that millennials distrust financial advice, with only 16% prepared to work with a financial advisor. In addition, 55% of young adults claim not to have life insurance because of affordability constraints. The study shows that individuals stand to receive over 1 400 times more cover per rand spent on life insurance versus other types of insurance. Friedlander says life insurance is perceived as expensive only because the full benefit of the cover is not considered.

The study affirmed Asisa’s “relatively simple” solution to closing the gap, which requires that millennials increase the amount of their current disability gap by 1.9 times, or an additional 4.6% of their income.

“The alternative,” says Friedlander, “would require millennials to reduce household expenditure by 42% or increase their income by 97% post-claim.”  

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These “Millennials this, millennials that” articles every other day are really tiresome.

Worse is the way the term gets redefined every few years, rendering it meaningless. There’s a recent on this site article claiming that millennials are people born between 1984 and 2000. Instead of using this tired and meaningless cliche, why not just say “18-35 year olds”, or “young adults”?

And when it goes wrong, they shout it’s not their fault!

Too used to the reset button on their games, Ctrl Alt Del comes to mind…

Time to own up to the real world…..

Wow, bruh, tell us more. I bet you’re going to use words like ‘entitled’ and ‘snowflake’ next, amirite?

*bowing before your intellect*

You are neither rock nor mineral, I guess?

…..or is that a rhetorical question?


So Discovery Life/ASISA says millenials aren’t buying enough death and disability insurance? It is exactly like asking a barber if you need a haircut…you are unlikely to be given an objective answer

Agreed, I wonder how much Discovery pays MW for these BS articles!??

the insurance industry is now whining about its future profits?

When I started work in 1967 I bought endowment policies and a life policy after paying into them for some 25 years I cashed in the endowments as the payout was less than a years salary – the only rich people were the insurance companies.
If I had a insurance cover life all over again I would rather go with employer group life cover and would have invested all other excessive costly insurance premiums into the stock exchange. Today I would invest in ETF as insurance policies and keep well away from insurance companies

I agree with you in principle. However, my facts. I took out a Universal Life Policy 27 years ago. Premium of R 150 pm, Life Cover of R 300 000 – and it has a cash value of R 75 000 now. Perhaps I could have done better ? – perhaps not. This is what was available at the time. I wish I had doubled the premium then.

True and that’s my point big green were working on an internal rate of return of some 5.5% the rest went to their fees

“INSURANCE” companies has “CONNED” us ( pensioners ) of our money. In return we have educated our children not to use Brokers connected to Banks and Insurance companies. My children are graduates and they had been advised to do additional financial courses at university to gain financial knowledge. Today they do not require the services of insurance and investement brokers. It is only the people without knowledge that are being captured by the banks and the insurance companies. I am retired and I scrapped my life insurance in my late forties and diverted the money to unit trusts and today I am reaping the benefits of my decision.

ITs interesting to see that the future generation are not investing in the fear factor! Perhaps they’ve seen the writing on the wall…that the planet is in trouble, the world is in trouble and this country is in trouble. Live for today for tomorrow we die. Could explain their lack of interest.

“millennials need to protect a far greater portion of their income on disability,” says Friedlander

…and i guess we must get disability cover from Discovery life.

I guess people still miss the point of insurance. Let’s re educate you guys. As we all know some people are dependent on your income like your kids, spouse and etc. There is a possibility that they will not receive that income and that is a risk of a financial loss to your family because as humans there is a risk factor that is attached to you as we use cars to travel to work, some work with hazardous equipment or at hazardous sites. Looking at risk management poin view there are certain risk we cannot avoid and we have to accept like you have to go to work to earn that income…so you transfer that risk to an insurance company. That in an event of a personal financial loss they will replace that income so your family does not suffer. Unless you are immortal then you do not need an insurance. Nothing is guaranteed in life only death is. Be thankful that you could wake up today or made it till today…does not mean you are guaranteed tomorrow. Sorry people have left their families in debt…housebond, cars, school fees, living expenses, food…because they have lossed income they used to get. Trust me savings are never enough. Insurance is a protection from financial loss to your family by replacing your income when you no longer there. People tend to misunderstand the concept of the lumpsum capital if you earn R20000 your should be for R2.4m if that’s is invested in a fixed account it will get a fixed interest of around 10% p.a you family get R240000 p.m which is like R20000 a month income replaced without any hustle and bustle that’s called a passive income for you family. This without even touching the lumpsum. If you are under insured you see that it won’t be able to replace your income. Leaving your family in debt. Watch out people that is why you need a financial adviser because of such advice of which some where not aware of. Insurance is an important risk mitigation tool.So use it!

Good response.

We are usually all in denial. This insurance is expensive for most but well worth it in the event of an unthinkable event.

Hope one never needs it but………………..

…..dizzy reading without paragraphs but thats insurance sales

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