It’s a real risk to have a large gap in your life cover

Laura du Preez | 04 November 2022

Laura du Preez has been writing about personal finance topics for more than 20 years, including eight years as personal finance editor for two leading media houses. 

Could you live with a 30% cut in your income?

Every day close to 400 South African breadwinners die – this totals more than 142 000 a year.

The latest study of the gap between the insurance cover South Africans enjoy and the insurance they need reveals that many of them die without enough life cover, resulting in their families having to cut their expenses by 30%.  

The study is conducted every three years for the Association of Savings and Investments South Africa (ASISA) by True South Actuaries and Consultants.

The outcome typically shows that South African income earners have an insurance gap amounting to trillions of rands.  For the year to the end of 2021 the gap was R34.3 trillion, Hennie de Villiers, deputy chair of the ASISA Life and Risk Board Committee, says.

De Villiers says this amounts to around 15 times the government’s annual budget and 26 times what the government spends on social grants annually.

You are taking a big chance

While the overall numbers are staggering, the main message from the gap study is that most breadwinners are significantly underinsured and families run a real risk of significant hardship should they be one of the 500 families that face death or disability each day in South Africa, De Villiers says.

When the total gap in cover is averaged to show what it means for the country’s 14.3 million breadwinners, it is easier to see where your own gaps may be.  On average we have only 45% of the life and disability cover we need.

On an average annual income of R213 000 a year (R17 750 a month), South African breadwinners should have R1.8 million in life insurance, but only have about R800 000 in cover – an insurance shortfall of
R1 million, the averages calculated in the study show. Read more: How much life cover do I need?

Taking out additional cover to close this gap will cost, on average, 4.5% of after-tax income, WS Nel, actuarial research lead at True South Actuaries and Consultants, says.

Alternatively, their families will need to find an additional R5 630 a month in income or cut their expenses by 30%, he says.

The hard choices this forces on families are downscaling their lifestyles and forcing adult children to give up their education to get a job, Nel says.  


The gap in life cover for the average South African
Average life cover required R1.8 million  
Average life cover in place R0.8 million 44% of the need
Shortfall R1 million Equals a cut in income of 30%
Cost of plugging the gap with more cover   4.5% of pre-tax income


Even bigger for disability


The study presents an opportunity for you to do your own analysis of the gap in your insurance cover, Busisa Jiya, the chief executive officer of ASISA, says.

We must plan for the future, even though it is difficult to consider outcomes that are potentially tragic, he says.

The gap study presents a moment to reflect and seek professional help on what you want your legacy to be for your family should you suffer a disability or die, Jiya says.

The study reveals that, on average 129, South Africans are disabled every day – 47 000 people every year.

However, the gap in cover and the risk of being underinsured is higher, as your disability cover needs are typically 20% higher than your life cover needs, Nel says.

On average, South Africans should have R2.6m of disability cover, but instead have just less than R1.2m, leaving an average disability insurance gap of about R1.4m, the study reveals. Read more:  How much lump sum disability cover do I need? and Do I need income protection?

This would result in an average cut in income of 33% should they be disabled and unable to work, the study found.

To close the gap by taking out additional cover would cost, on average, 2.6% of income, Nel says.

Alternatively, with a breadwinner unable to work, families would need to find R7 443 extra every month or cut their living expenses by 33%, he says.


The gap in disability cover for the average South African
Average disability cover required R2.6 million  
Average disability cover in place R1.2 million 46% of need
Shortfall R1.4 million Equals a cut in income of 33%
Cost of plugging the gap with more cover   2.6% of pre-tax income


Younger South Africans most exposed

De Villiers says a key message from the study is that younger South Africans are the most underinsured.

Unfortunately, many people in this age group think they are invincible and do not have cover in place, but events like the Covid-19 pandemic show that while their risk of dying is smaller, it is still there and it is material, he says.  

Nel says younger earners who die or are disabled depend on insurance cover to provide for themselves and their families for much longer than older earners who are closer to retirement.

Earners younger than 30 years have only 11% of the R1.8 million life cover they need and face an average insurance shortfall of R1.6 million for life cover, the study shows.

For disability, under 30s have, on average, just 38% of the R2.7 million of cover they need and an average shortfall of R1.7 million per person.

The gaps in cover for younger South Africans
  Younger than 30 Between 30 and 39
Life cover required R1.8 million R2.1 million
Adequacy of life cover 11% 35%
Shortfall in life cover R1.6 million R1.4 million
Disability cover required R2.7 million R3.1 million
Adequacy of disability cover 38%


Shortfall in disability cover R1.7 million R1.8 million


Earners between the ages of 30 and 39 years have 35% of the R2.1 million of life cover they need, and face an average shortfall of R1.4 million per person.

They need, on average, R3.1 million of disability cover but have just 43% of this cover and a R1.8 million shortfall per person for disability, the study shows.

South Africans over the age of 50 years, on average, have much lower insurance shortfalls as they have more cover, have paid off debt and their children’s education and have far fewer years to retirement.

The study assumes that the insurance need exists only until retirement age since provision for income in retirement should be covered by retirement savings rather than risk insurance, Nel says.

Gaps depend on who you are

Your personal gaps in cover may be broader or narrower, depending on your personal circumstances, but on average, age, income and education level all impact the gap in cover.

Higher earners have smaller gaps in cover, but the study still shows that the highest-earning 20% of South Africans have only 60% of the life cover they need and 48% of the disability cover they need.

And generally, those with better education have more cover. However, an earner with at least a degree would need, on average, disability cover of about R6.5m. Typically, such an earner would only have cover of R3.3m, leaving a substantial insurance gap of R3.8m – implying that only 58% of the disability insurance need is protected by the actual cover, the study shows.

Other costs that can increase cover needs

The study does not take into account any short-term expenses related to death or disability before retirement, such as funeral costs, medical costs and modifications to homes and cars.

It also excludes cover – known as temporary disability cover – for a disability that results in you being incapable of working for a short period.