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You need expert help to close insurance gap – Liberty Life

01 April 2008 Liberty Life

‘Earning today without thinking of tomorrow’ is reaching epidemic proportions in South Africa, calling for a national attitude adjustment as the mismatch between prudent and actual insurance cover widens to a chasm.

The alarm has been sounded by leading insurer Liberty Life following the publication of research by the Life Offices Association (LOA) showing that the national insurance gap is now more than R10 trillion.

The LOA’s gap study contrasted ideal and actual life and disability cover across households in various socio-economic groups and age ranges. Researchers concluded that if a household’s main earner died or became disabled, the average family would have cut living expenses by half if it hoped to cope.

An average earner needs to spend between R1 330 and R2 322 more each year to close the life and disability gap.

Frank Schutte, managing director of the individual life business unit at Liberty Life, commented: “Earning without thinking about long-term family needs applies in two scenarios – those who have discretionary income for the first time following new job opportunities and those who made provision in the past but have given no thought to the need to adjust their cover as earning power rises or they reach a new stage in life.

“Those who have moved away from poverty would not wish their family to go back to a hand-to-mouth existence. But that can be the result if they die or become disabled without appropriate insurance.

“Similarly, those who have some cover, but not nearly enough, could be condemning their children to a future without tertiary education and their spouse to a big drop in living standards.”

Liberty Life says expert help from a professional insurance intermediary is often required to ensure cover is appropriate to their financial needs. Liberty Life has a variety of solutions to meet these needs – from as little as R100 per month.

The research shows that someone earning R60 000 a year needs cover of approximately R531 000 to preserve current living standards. On average, South Africans in this income range have only 45% of the necessary cover.

Schutte noted: “This puts their families at great risk of a significant reduction in living standards should death or disability occur.

The LOA study also indicates that as a rule-of-thumb the average breadwinner should be spending another 3.9% of monthly living expenses to complement current life insurance premiums.

Schutte added: “The best advice is not to rely on rules-of-thumb or guesswork. Consult the professionals and draw up a proper financial plan. That’s the best way to lock in the lifestyle gains you’ve made.”

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