Will your family finances survive the loss of a breadwinner?

Money Reporter | 01 September 2021

Many thousands of South African families have lost loved ones over the past 18 months due to the Covid-19 pandemic, and for many families the pandemic resulted in an unexpected loss of one or more breadwinners.

The loss of an income earner can have devastating financial implications for families if no provision was made for adequate life cover. Very often this results in significant financial hardship for families in addition to the emotional trauma caused by the loss of a loved one.

In the year to March 2021 there was a 43% increase in death claims against life insurance policies when compared to the year to March 2020, according to statistics released by the Association of Savings and Investments South Africa (ASISA).

In total, more than a million death claims were lodged and R47.58 billion was paid out – an increase of 64% over the death benefits paid in the year to March 2020. 


Payouts soften the blow

Hennie de Villiers, the deputy chair of the ASISA Life and Risk Board Committee, says that while losing a family member results in a very challenging time for those left behind, the pay-out of a death benefit does alleviate the financial hardship that can result when a breadwinner dies. This is where life insurance plays an invaluable role, he says.

While the families of more than 200 000 policyholders received death benefits from individual life policies, group life policies and credit life cover, most of the benefits paid were on funeral policies.

More than 80% of the one million plus death claims in the year to March 2021 were for funeral policies (821 952). 

Why funeral cover is not enough


Death claims for the year to March 2021

R47.58 billion paid out in death claims

1 023 083 death claims lodged 

821 952 of these were for funeral benefits

108 001 of these were on group life policies

64 750 of these were on individual life policies

28 350 of these were on credit life policies

64% the increase in the amount paid on all death claims over the year to March 2020

Lapses in the year to 2020

10.2m policies lapsed

16% the increase in policies lapsed over 2019

Sources: Association for Savings and Investment South Africa death claims statistics released August 2021 and Long-term insurance statistics released March 2021

Funeral policies are popular among South Africans as they can generally be taken out by answering only a few questions, and without medical tests.

This type of cover – known as cover with limited underwriting – is also typically more expensive than life cover if you compare the cover amounts for the premiums paid. This is because the life company takes on significantly more risk when issuing a policy without comprehensive underwriting.

Funeral cover, however, is designed to only cover funeral expenses and not to replace the income a family breadwinner could earn. Once the funeral is over, families who have lost a breadwinner, and who have no life cover benefits to support them, will typically be forced to scale back their lifestyles unless they have already saved a substantial amount.

Ditching cover is a risk

The pandemic and the lockdowns that followed have brought tough economic times for many South African families. Life companies provided premium relief assistance between March and July last year to help policyholders, whose earnings were impacted by the Covid-19 lockdown, preserve their risk cover and savings policies.

Unfortunately, millions of South Africans still cut back on what should be an essential – protection against events such as the death, disability or illness that take away a breadwinner’s income.

ASISA’s statistics for the year to the end of 2020 show that 10.2 million policies that provide cover against these risks lapsed last year. This means that roughly the same number of families will not benefit from a pay-out should something happen to their breadwinner.

A policy lapses when the policyholder stops paying premiums for a risk policy that has no fund or investment value. The number of policies lapsed in 2020 increased by about 16% over the around 8.8 million risk policies that lapsed in 2019.

De Villiers says while the increase in the 2020 lapse rate is concerning, it was to be expected given the high number of South Africans who lost their incomes during the Covid-19 lockdown period.

Ditching your cover in a time of heightened deaths and disability puts your family at financial risk and may be a decision you, or they, live to regret for many years.  Instead, always try and reduce other expenses before considering dropping death and disability cover.

Value only realised in crisis

Replacing your cover when your finances improve may prove costly, as your life assurer is likely to charge you higher premiums for taking out cover at an older age than the cover you had in place before. In addition, you may face being excluded from cover for any conditions such as high blood pressure that you may have developed since first taking out a life policy. Read more: What does it cost to insure your life against death, disability or severe illness?

De Villiers says: “Unfortunately, the true value of having long-term insurance cover in place is generally only realised during times of crises. Losing a second income when a family member dies, for example, can have a devastating financial impact on a family. For this reason policyholders should do their level best to hold on to the risk cover that they have in place.”

He encourages policyholders who are experiencing financial difficulties, and who might not be able to afford their premiums to contact their financial adviser or insurer with urgency to discuss potential solutions.

“When approached, life insurers do consider possible ways in which to assist policyholders who may be struggling financially on a case-by-case basis,” he says.  

Find out more about Insuring your life