Mind the insurance gap

Everyone, including pensioners, must avoid the insurance gap.

 

By Bruce Cameron

Co-author to The Ultimate Guide to Retirement in South Africa

 

South Africa’s middle- and lower-income classes continue to take blow after blow. The latest challenge is that now fewer can afford the life assurance they need in the case of death, disability critical illness cover.

 

South Africa’s 16.1 million formally employed income earners collectively had enough life and disability insurance cover at the end of December 2024 to provide only 39% of the income needed by their families in the event of death or disability. This means that the average South African household, supported by at least one income earner, would be forced to cut living expenses by up to 37% if the provider died or became disabled, and no other source of income could be found.

The average formally employed earner would need at least R2.1million of life cover to ensure that their family can continue living at the same standard should their income fall away due to death. However, the average income earner has cover of R0.8 million, leaving an insurance gap of R1.3 million.

 

Other challenges

This comes as many household are being impoverished by:

• Medical scheme membership, which is being pushed by health inflation. Research is showing more and more member are downscaling their medical aid options or withdrawing.

• Another major above inflation driver is administrative increases of administered of municipal rates and taxes. This in most cases is driven by ANC corruption or Democratic Alliance over-spending

Uncontrolled online gambling, supported by dreadfully misleading advertising, particularly of sport, is setting back individuals as it reaches unpresented levels.

Apart from sinking deeper and deeper into debt, many individuals are wrecking any chance of a favourable retirement as they resort to the two-pot retirement system to withdraw whatever they can to pay off debt or fund their gambling.

Besa Ruele, a member of the ASISA Life and Risk Board Committee, says that the economic headwinds facing South Africa and the steep increases in the cost of living make it impossible for many income earners to simply up their death and disability cover premiums.

“Considering that salary increases this year are likely to be between 3% and 4%, if any, most income earners will not be in a position to channel 8% of their income towards risk cover,” says Ruele.
She adds that while the insurance gap numbers are sobering, the aim is not to leave earners feeling despondent.
“Instead, we would like to encourage families to discuss the potential shortfall in household income should something happen to the income earners supporting the household, and to consider taking steps to progressively close the gap. Death and disability cover should be seen as a tool to lighten the burden for families after suffering a devastating loss of life or physical ability, not a drain on disposable income.’

 

The latest figures

The 2025 Insurance Gap Study released by the Association for Savings and Investment South Africa (ASISA) shows that the life and disability insurance gap widened by 12.5% per annum from R35.4 trillion at the end of December 2021 to R50.4 trillion at the end of December 2024. The gap is estimated every three years by ASISA in partnership with True South Advisory.
Ruele says the size of the insurance gap is staggering. To put it into context, Ruele points out that South Africa’s insurance gap at the end of December 2024 was seven times bigger than South Africa’s Gross Domestic Product of R7.3 trillion in 2024.
With just over 24 000 South African formally employed income earners are expected to be diagnosed with a critical illness such as cancer, a heart attack or stroke in 2025, but only 15% of income earners have critical illness cover, according to a first time analysis of this section.

Insurance Gap Study released by the Association for Savings and Investment South Africa (ASISA) in partnership with True South Advisory.
The insurance gap is defined as the difference between life and disability insurance cover in place and the estimated amount required by households to maintain the same standard of living after the death or permanent disability of an income earner. The insurance needs exclude immediate expenses related to the risk event, such as funeral costs, medical costs, and the cost of adapting a home and car for the needs of a disabled person.
So anyone who dies, is incapacitated or suffers from a serious disease are likely to find their families in a terrible financial condition.

The latest analysis shows an 5% increase total life and disability cover over the three years to December 31, 2024, but this was on the back of a two million improvement to 16,1 million formally employed.
Ruele says that an increase in income earners means that more families require death and disability cover to help them maintain their standards of living should an income earner supporting the household die or become disabled.

 

Who will die

According to actuarial statistics, around 440 income earners are expected to die every day in South Africa in 2025, while 145 are likely to become disabled daily. In light of the death and disability gap, most of the 214 000 families faced with either the death or disability of an income earner this year would be forced to either adjust their standard of living or find alternative sources of income.
Ruele explains that the average family would be left with two options when an income earner dies: drastically cut household expenses by at least 34% or generate an additional monthly income of around R7 400.
She says the financial impact on families is even more dire when an income earner suffers a total disability, since the family size does not decrease. In fact, adds Ruele, a disabled person usually has more expensive needs since they are suddenly forced to stay at home and often require caregiving. The study shows that the average family would need disability cover of R3 million to maintain their standard of living. However, since the average South African earner has disability cover of only R1.2 million, the gap per family is around R1.8 million.
To close the gap, according to Ruele, the family of a disabled person would have to reduce household expenses by 37% or generate an additional monthly income of  around R9 800 a month.

For a lot more detail on this read the book, The Ultimate Guide to Retirement in South Africa. For more information on how to purchase the book go to Buy Now on the website  www.retirementplanning.co.za

 

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