You have been saving diligently since your first paycheque and have kept a perfect credit score to buy your own home. You are also proud that you don’t owe anything on your car, having bought it cash from an annual bonus one year. These two things are your biggest assets, right?
Wrong. It might surprise you, but your biggest asset is not the home you live in, even if the mortgage is fully paid, nor the car that you drive.
It is your ability to earn an income throughout your life.
A simple test on a future earnings calculator will shock most people with the small fortune they could earn in their lifetime. For example, if you are 25, earning R240 000 per year, and assuming you work until you are 65 with an increase of 7% in salary annually, the total amount stacks up to R47.9 million. For a 43-year-old earning R1.2 million a year with increases of 5% annually, it’s another R65.6 million in the bank if they plan to work another 27 years (until 70).
This should be a very strong argument for people to invest in their education and health and find the appropriate financial risk products to protect their income.
Unfortunately, statistics from the Association for Savings and Investments in South Africa (Asisa) show that the insurance gap in the country, including for products like income continuation benefits or income protection, keeps widening every year.
The Covid-19 pandemic may however have acted as a catalyst for stronger uptake levels.
Hennie de Villiers, deputy chair of the Asisa Life and Risk Board Committee, says in a statement released in March that the pandemic highlighted the importance of having risk cover and savings in place like no other event in the history of South Africa.
“The reality is that most of us know at least one person who lost [their] life due to Covid-19. We also know of many more people who lost their income during the pandemic, highlighting the importance of having access to savings.”
According to De Villiers, there has also been a strong uptake by consumers of recurring premium risk policies (life, disability, dread disease and income protection cover).
Kashmeera Kanji, head of market analytics and R&D at Discovery Life, believes the importance of being adequately insured as part of comprehensive financial planning cannot be emphasised enough.
She says that finding the right insurance product to provide income continuity is critical – not just for individuals, but also for a business where the absence of the human capital brought by key personnel could impact the long-term financial health of the company.
“Especially for business owners who have put so much into building that enterprise, having the right business assurance cover in place will help them to know that the business won’t simply fall to the ground if they are unable to be there,” she says.
Youth and women – the underinsured
According to the 2019 True South Asisa gap study (the most recent study), cover adequacy is lowest at younger ages.
The study found that, on average, people under 30 only have 10% of the insurance cover they need – a total insurance gap of R6.134 trillion.
“For this age group, risk cover is just not a consideration that is front of mind – they don’t, for example, consider being struck down by a stroke as this is generally associated with ageing,” says Kanji.
Kanji believes the biggest contributor to the R6 trillion-plus insurance gap for this age group is a lack of income protection.
“If something happens to you as that 25-year-old with a lifelong potential income of R47 million, it is a lot of money to find to cater for their entire livelihood that has been lost,” she says.
Despite the pandemic bringing mortality to the doorstep of the young, Discovery has not yet seen a change in the mindset of the youth towards income insurance.
“Some of our youth are thinking about life cover, even funeral cover, but the least taken up of all the options is the income continuation benefit – even though it is the most relevant to this age bracket,” she says.
Another severely underinsured group is women.
“Perhaps it is a generational or cultural aspect, but women traditionally did not place planning of finances front of mind. But we are seeing some improvement here,” says Kanji.
Previously the split between men and women for buying insurance products was around 70/30.
“Now we have around 47% women and 53% males in our book, which is excellent progress.”
Another area of concern is that many small- to medium-sized businesses run by women still have no business assurance in place – less than a quarter of business assurance policies are held by women.
When it comes to income continuation for women, Kanji gets passionate about the necessity of this cover: “When there is a sick or ailing family member it is generally the females of the household who take time out to help that person, giving up a job in part or total. So women are generally earning less, losing more time in the workforce, and they are also living longer. They need this protection.”
Understand the cover
If you are considering income risk cover for yourself or your business, it is crucial to understand all the elements the benefit brings and to discuss this with your financial advisor.
Asking questions like whether the solution has built-in contribution protection (helping to cover expenses such as medical aid, retirement contributions, and insurance premiums) and if it is whole-of-life – meaning covering you up to death, not just retirement age, for example – is of paramount importance.
You are, quite literally, worth a fortune – make sure you treat this asset appropriately when you plan for your financial future.
Brought to you by Discovery Life.
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