Taking care of the future

Isaac Moledi

Isaac Moledi

When did you last re-evaluate your life insurance needs? If you are one of the many who have countless insurance policies, when last did you check which one suits your needs?

While we celebrate September as life insurance awareness month, insurance gurus say we should use this international awareness campaign to get to know the types of life insurance that are appropriate to our needs.

This calls for questions such as whether one needs insurance, how much you are prepared to pay and what types of insurance would be most appropriate to your life stage.

Recent studies have shown that South African families, overall, are underinsured by a massive R10 trillion.

Andrew Warren, business development executive at Liberty Life, says that one area in which individuals often fall short is in the protection of their income.

"We are all exposed to the risk of disability or disease and the resultant loss of potential future income," Warren notes.

A recent Life Office Association Insurance Gap Study revealed that South African households would need about R12,3 trillion to maintain their living standards should one of the breadwinners become disabled.

But the actual cover at the time of the survey was only about R6,5trillion, leaving a significant disability insurance gap.

"This shortfall in income protection insurance cuts across all age groups," Warren says.

He is of the view that to retire successfully an individual needs to convert income earned over his or her working life into assets that will provide an income stream long after retirement.

This income stream should ideally be as high as the highest level achieved during that individual's working life to ensure that the individual is able to maintain his or her standard of living.

"The key here is that the primary income stream - being the one which will be converted to wealth over the duration of the individual's economic life - must be protected."

This income is used to accumulate assets that will generate a post-retirement secondary income stream.

Warren says there is a prevalence of income under-insurance especially among younger people

"Young people believe they do not need to protect their future income streams because there is far less chance of death or disability at that time in their lives.

Another mistake they make, he says, is that because they are starting out in their careers they have very few assets that are in need of protection.

Warren says though the probability of a life-changing event in the younger years is less, individuals must realise that the chances of death or disability are random and can happen at any time.

"If such a disruptive event does occur during the earlier stages of life, the consequences are far more severe since a much longer time period for primary income generation has now been destroyed," Warren warns.

He says younger people embarking on careers overlook that their biggest and most valuable asset is their potential future income.

"It is essential that this asset be protected through effective insurance," he says.