Living longer but also outliving your finances?

Jaco Gouws, risk product manager at Old Mutual.

South Africans are living longer, according to the Statistician General mid-year population report released in May.

Life expectancy in the country has improved dramatically in the past eight years - going from 53 to 60 years. This is attributed to the fact that illnesses that previously carried a death sentence can now be treated, thanks to medical advances. If this is a trend that will probably continue, the million dollar question is: are you financially prepared?

A recent statistics guide released by Old Mutual showed that R2.8 billion in claims was paid to the group’s retail customers in 2012. This was made up of:

• Death claims - 78%

• Illness and physical impairment claims – 12%

• Disability claims – 10%

• Retrenchment claims – less than 1%

“These statistics show us that people are not expecting to live through life’s unforeseen circumstances,” says Jaco Gouws, risk product manager at Old Mutual. “We are all aware of modern medicine and that there are more treatments available to humans, yet we all mostly plan for death.

“We tend to overlook the high likelihood that we will experience temporary or permanent disability, a severe illness such as cancer; or a retrenchment before we actually pass away.”

According to research done by True South Accountants and Actuaries in March this year, 60% of South Africans are underinsured for permanent disability and a staggering 93% are underinsured for temporary disability. Will your medical aid be able to help you fund the necessary treatments should you become temporarily or even permanently disabled? What if you suffer from a stroke or heart attack; or are diagnosed with cancer or Alzheimer’s disease, for example? Are you financially prepared?

“Life happens!” says Gouws.” And when it does, it could have serious financial implications for our families. Disability and severe illness solutions are an important part of a financial plan as they will help you pay for the costs your medical aid can’t cover, allow you to take some much needed time off work to recover, pay for a caregiver or settle a medical debt.”

Protect your earning ability

To understand the importance of ensuring you have adequate cover for life occurrences, consider this simple calculation:

At age 20, you start earning R10 000 per month. If you only consider a 6% inflation and not other factors such as bonuses or promotions, by the time you are 60, you would have earned just under R28 million. Add a further 2% and that number almost doubles to just over R50 million. When you consider how quick we are to insure cell phones and motor cars, why are we not insuring our most important asset – our own earning capacity?

It is important to speak to a financial adviser to determine what your needs are; to provide recommendations that will match the life stage you are in; and to get you closer to your financial goals.