IF YOU are new to the working world and full of the joys of earning a salary, investments may be low on the list of priorities when deciding how to spend your newfound earnings. But, regular pay cheques usually lead to accrued assets and the possible accumulation of debt that would need to be protected. Given that your biggest asset is your ability to earn an income to maintain your lifestyle, it is important to understand the risks that you face should disability or retrenchment affect your earnings.
Vera Nagtegaal, the executive head of Hippo.co.za, said that while some employers might offer group risk benefits, the specific benefits included might not be enough to fully protect you and your money. “It is vital that you assess the cover that you require accurately and that you regularly update your policies each time there is a change in your circumstances,” she said. According to a 2016 Gap Study conducted by the Association for Savings and Investment South Africa (ASISA), the biggest shortfall in disability and life insurance lies within younger age groups of 39 and under. The study showed that only 35% of under-30s had adequate disability insurance and only 13% had adequate life insurance. Underinsurance was a big challenge for the industry. She said that the statistics by the study showed that the average under-30 would need R1.33 million in death insurance cover, but had just R168 000 worth of cover. The shortfall in disability cover was even larger, with the average under-30 having just R738 000 worth of cover when their actual need was R2.1m. The study cited an overall shortfall of R4.1 billion for death insurance and a whopping R4.9bn for disability cover for under-30s.
Nagtegaal emphasised the importance of having adequate disability cover. She said that especially as a young person you needed an income protection plan that paid out a monthly sum of money over the time you were unable to earn a living might be better than a disability policy that paid out a lump sum.
“This is because the younger you are, the more working years you have ahead of you. If you become permanently disabled, an income protection policy will pay you a monthly income for the rest of your life, based on a portion of what you earned at the time of becoming disabled. “Should you be employed in a different type of job with your disability, the policy could also protect you and your dependants in terms of additional medical expenses, while at the same time allowing you to save for retirement,” she pointed out. Life cover, which pays out upon death, is often perceived as a grudge purchase, but there are good reasons for taking out a life policy while you are still young, whether you have dependents or not. For one, younger people are generally healthier, and therefore considered lower risk. This means that your premiums will be lower with fewer, if any, exclusions. It also means that your family will not be liable for your debts should you die.
“The industry has risen to the challenge of the changing nature of the young workforce by developing smart, innovative products that are also affordable, for example merging policies such as life and funeral cover into one product. “Also, offering quick insurance solutions via mobile apps and SMS services will ensure that these products are easily accessible. I believe that this change in workforce behaviour is all the more reason for millennials to protect themselves, their loved ones and their possessions through being adequately insured,” Nagtegaal advised.
Vera Nagtegaal is the executive head of Hippo.co.za