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Insurance Awareness Day: how - and why - to stay insured during tough times

Insurance Awareness Day: how - and why - to stay insured during tough times
26-06-23 / Tommy Jackson

Insurance Awareness Day: how - and why - to stay insured during tough times

Johannesburg - South African consumers are notoriously under-insured – and it could come back to bite them. A 2022 study by the Association for Savings and Investments (ASISA) suggests that only 44% of the population's insurance need is currently met by actual cover. What this means is that most families will struggle if their main breadwinners die or are no longer able to work.

To ensure their family can maintain their standard of living after death, an average South African earner needs R1.8 million of cover. Currently, they have just less than R0.8 million. This leaves an average death insurance gap of about R1 million – and it's even higher for disability, with a gap of about R1.4 million.

But how do you maintain insurance premiums at a time when inflation and food prices are rocketing, and you're struggling to balance the budget every month? For Stian de Witt, CFP®, executive head of financial planning at NMG Benefits, it's all about getting your priorities right.

"Cancelling your life or medical insurance when your budget is tight is one of the worst financial moves you could make, because it leaves your entire family exposed if anything happens to you. I always recommend that insurance is one of the first items to be paid every month, because it is critical for the financial protection of you and your family," says De Witt.

If you're underinsured, it means that your life or healthcare cover is insufficient to adequately meet your needs. This can have dire financial consequences for you and your loved ones. Medical underinsurance means certain treatments, medications and essential services can be excluded from your benefits and cover, leaving you responsible for large portions of your healthcare costs. Life underinsurance can leave you and your family without an income when you need it the most.

"What many people don't realise is that your life and disability cover should cover outstanding debt, estate expenses and to provide your family with a monthly income if you die or become disabled. The amount of money you'll need in these scenarios may reduce or increase over time, depending on your individual needs," says De Witt.

A rule of thumb is that once your debt is paid, your family should be able to comfortably live on 5% per year of the value of your insurance. Right now, the average South African earner has life cover of less than R600,000. To put this into perspective, an investment of R10 million would yield a monthly income of around R40,000 before tax. With an investment of R600,000, you could expect to receive R2,500 per month.

So, what can you do?

You can't control the challenges facing South Africa and our economy. But, with the right guidance and support, you can control your financial situation in difficult times, and understand the long-term effects of your short-term decisions about your finances. That's why speaking to a financial adviser is an important part of building financial stability, says De Witt.

It's also critical to choose the right medical scheme and plan for your healthcare priorities and financial constraints. For example, you could look at a medical scheme plan and fill your 'gaps' with gap cover. Again, speaking to a professional will help match your required cover more accurately with your financial capability, and save you a lot of money.

"Insurance is a critical safety net in times of trouble. It gives you and your family peace of mind, knowing that your financial future is secure. That's why you shouldn't see your insurance premiums as a grudge payment, but rather a legacy that you leave behind for your loved ones," says De Witt.

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