Risk cover is one of the most important investments you can make in yourself. Although it is often seen as a grudge purchase, being adequately covered allows you to live worry free, knowing that should you be met with a life altering situation, you will have the financial support to face any situation head on.
Recent studies have investigated the insurance industry in South Africa and what was alarming to note was the lack of cover in place by South Africa’s young, working population.
As you progress through life, so different forms of risk cover become more and less important. For any person working, whether young or old, the ability to earn an income is their greatest asset. Making sure that ability to earn is protected, is the most important cover you can have in place.
If there’s one form of insurance that single millennials should not do without, it’s income replacement cover, which pays a monthly income if you become disabled or critically ill. With this important cover available, there is unfortunately a relatively low take-up of this type of insurance by this demographic.
Research shows that younger millennials who have entered the workforce but who have not yet started a family are prone to risky behaviour, such as binge drinking and late-night driving. But they appear not to recognise the importance of protection against permanent disability.
If you have recently started work, have you given any thought to what you would do if you were involved in a car accident and disabled as a result, to the extent that you could no longer earn a living? Who would look after you? Whoever took on that role would bear a huge financial burden, because your living costs would probably include high medical expenses, so you would require more than what you were earning.
You probably have a certain degree of cover through your employee benefits package (which typically includes pension benefits and group life and disability cover). But such cover is likely to fall far short of what you would need, particularly if you have a career’s worth of pay slips in front of you that you have now lost. And a group disability pay-out is typically in the form of a once-off lump sum.
According to recent studies, a 25-year-old professional earning R20 000 a month has an expected future income totalling R18 million. This includes inflation, as well as salary raises and promotions that such a professional would typically experience over a 40-year career.
Millennials unfortunately display a “present bias”, giving little thought to the outcomes of their suffering a life-changing event, they also exhibit high levels of risk-taking behaviour, the research says, coupled with a “naive sense of invincibility and under-appreciation for the probability of suffering a life-changing event”.
A scary statistic shows that almost 88% of millennial deaths have been as a result of behavioural, yet largely controllable, causes, such as car accidents. The young adult motor vehicle fatality rate is 60% higher than the average of all other age groups.
And while you may, if you have no dependants, be justified in not seeing the need for life cover, be aware that you are more likely to be seriously injured in a motor accident than to die in one.
The same study estimated that of the 145 000 graduates entering the working world at the end of this year, about 3 900 will suffer a life-changing event (disability, serious illness or death) before age 35, 10 000 before 45 and 23 900 before 55.
According to another study by a global reinsurer, millennials are more likely to take out travel and mobile phone insurance than life insurance. This “irrational underconsumption of life insurance” is even more perplexing when you consider what good value it offers for people under the age of 30. Someone in this age group would typically pay R150 a month to insure a smartphone worth R10 000. On a R500 000 car, the millennial would be paying premiums of about R2 200 a month. However, income protection cover to the value of R18m would typically cost the millennial just R186 a month.
Risk cover is something we recommend gets reviewed every 5 years to reassess your situation and to ensure that not only are you sufficiently covered, but that your premiums are manageable and competitive. Life and disability cover get more expensive as you get older, so it’s in your interests to take out such cover earlier rather than later. To combat excessive premium increases, we again recommend that risk policies be looked at every 5 years. It costs nothing to be requoted from competing insurance companies, and you might just end up saving some money.
Speak to your Wealth Manager today about reviewing your risk cover. Opening the conversation could lead to you becoming adequately covered or saving you money each month on your premiums. If it turns out your premiums are competitive, there is no obligation to make any changes, and your current risk policy will continue indefinitely.
