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How the insurance gap affects you

South Africans face a combined insurance shortfall of R28,8 trillion.

The 2016 Life and Disability Insurance Gap study, conducted on behalf of the Association for Savings and Investment South Africa (ASISA) by True South Actuaries and Consultants, highlights concerning statistics.

South Africans face a combined insurance shortfall of R28,8 trillion. This is the amount of insurance cover needed to meet the gap between the total existing life and disability insurance cover in place currently, and the cover required to make sure all working South Africans can provide for their families if they died or were unable to work.

What’s concerning is that the insurance gap has been widening since 2012, increasing by R4,8 trillion over the past five years. An unexpected event, such as the death of a breadwinner, can leave a family’s entire asset base decimated.

When it comes to life insurance, ultimately, someone pays. Either you pay the premiums so that you have cover or your family suffers the financial consequences if you don’t have life cover in place.

Income earners with annual salaries of between R100 000 and R215 000 are underinsured by R1,2 million. That means that if the breadwinner dies, the family would either need to find an extra R6 349 per month after tax or reduce their monthly household expenses by 38%.

Individuals earning more than R215 000 a year are, on average, R2,4 million underinsured. This means that, if they die, the family would need R12 874 after tax or they would have to reduce their monthly spending by 36%.

The gap is significantly higher for people with disabilities as the living expenses of the income earner would have to be taken into account. The study found that if an individual earning R215 000 a year or more was unable to earn an income due to a disability, the average level of underinsurance means the family would have to find an additional R17 000 after tax per month.

Your long-term insurance is essential during a recession

As the country grapples with the fact that it has entered into a technical recession, it’s more important than ever before to take your insurance cover seriously. Too many South Africans think about insurance as a grudge purchase, when it really acts more like an investment that cashes in when uncertainties arise and risks become realities. The last thing you should be doing is cutting your insurance cover while waiting for the storm to pass.

Financial advisers have an important role to play in prioritising spending, creating peace of mind, confidence and a feeling of security in their customers by covering four pillars of risk: life protection, loss-of-income protection, lifestyle protection and policy protection.

If you’re concerned that you may be underinsured, meet with your financial adviser today. Here are three important steps to prepare for your meeting:

1. Make a list of your financial goals.
Each customer’s financial goals are unique. When setting financial goals, customers must consider their age, retirement needs, lifestyle requirements, debt levels and personal risks. It’s important to be realistic so that the financial adviser can provide the right advice to make the goals achievable.

2. Formulate questions for your financial adviser.
To get the highest level of value from the financial adviser, customers should prepare a list of pertinent questions related to their current financial situation and future planning needs. These questions should cover debt reduction, retirement planning, investment time lines and risk mitigation.

3. Prepare all important documents for the meeting.
To enable the financial adviser to provide the best advice, customers should bring bank statements, insurance policy documents, tax certificates, estate planning information and any other important financial documents related to the financial planning process. to draw down on longer-term savings or rely on emergency short-term debt. This increases your financial vulnerability and therefore your financial risk.