Income Protection: 3 Common misperceptions

First published Cover online August 2019

According to the latest Statistics South Africa Survey¹, the South African savings rate is sitting at -0.10%. The reality is, South Africans are not saving enough, and what makes this statistic alarming is that it highlights the fact that individuals are spending more than they earn. In fact, according to a recent MyTreasury.co.za report, this household savings rate ranks South Africans last against the other G20 countries in terms of savers.

It’s no wonder our savings habits are so poor when you consider that 72.5% of household income goes to servicing debt². This debt trap creates an endless downward spiral – if your salary is constantly being eaten away by debt obligations and the incumbent exorbitant interest rates, the idea of saving must feel like a pipe dream.

As a result, life insurance is so often viewed as a grudge purchase and many South Africans are either under or totally uninsured. But the reality is that 7/10 people will experience at least 1 injury or illness during their working lives that will prevent them from being able to earn an income³, leaving South Africans dangerously exposed if they don’t have the right insurance cover. If individuals are struggling to make ends meet when they are earning an income, how would they manage with any interruption in that income?

FMI’s 2018 #RealityCheck Consumer Survey found that the inability to earn an income for as little as 3 months would have devastating effects for most South Africans, with 62% of respondents saying they’d completely run out of money in that time, and nearly 20% saying their house and assets would be repossessed.

Given our economic landscape and the financial shortfalls many individuals experience every month, you may resist the idea of Income Protection and view it as just another bill to pay. Here are 3 of the most common misperceptions why individuals don’t think they need cover.

2. South Africans believe it will never happen to them. South Africans typically overestimate the risk of death and underestimate the risk of a temporary injury or illness. 25-35 year olds are 2 times more likely to have an injury or illness during their working career than they think and 5 times less likely to die before age 65 than they think⁴. In reality, they have over a 90% chance of a temporary injury or illness compared to as little as a 14% chance of dying during their working career⁵.
3. South Africans don’t understand how much they’ll earn over their careers. Another insight from our #RealityCheck consumer survey is that South Africans underestimate how much they will earn over their lifetime by up to a massive 79%. More than half of the survey respondents thought they would earn no more than R10 million during their working lifetime. Yet, a 25-year old earning R15 000 a month for the rest of their career will earn R31,6 million over their working lifetime⁶. Once an individual understands and values this, it becomes easier to focus on the bigger benefit – that when you protect your income, you’re not insuring R15 000 – you’re insuring R31 million.
4. South Africans believe they can’t afford it. FMI’s #RealityCheck survey also revealed that South Africans believe they cannot afford life insurance, and yet 57% of respondents said they spend more than R500 a month on fast food. The average 30-year-old can protect 100% of their income for as little as R20 a day. So, it’s not a question of affordability, but a question of priorities.

Despite the low savings rates amongst South Africans, if an individual understood their risks, the value of their future income and how affordable Income Protection is, they’d understand the importance of protecting their Income First – so that their future dreams, ambitions and impact are always secured.

¹Statistics SA 2019 Q1

²The South African Savings Institute Dec 2017 SARB Quarterly Bulletin

³FMI Claims Stats

⁴FMI #RealityCheck Consumer Survey 2018

⁵FMI Risk Stats 2019 – Temporary Disability unable to work for 14 days or more up to the age of 70 compared to passing away before the age of 70.

⁶Based on 6.5% annual growth and a retirement age of 65.