Words on wealth: you need to protect your ability to earn

Here’s a question for young working South Africans. What is your most valuable asset? No, it’s not your property, and it’s not your retirement savings. It’s you.

Unless you are in retirement or close to retiring, your ability to work and earn an income is more valuable than the assets you have accumulated. It is therefore essential to protect yourself as a living asset.

Long-term insurance comprises mainly life cover and disability cover. If you’re young and single and own little in the way of assets, life cover is not essential; it only becomes so once you start a family and have dependants.

Disability cover, on the other hand, is a must-have from the beginning of your career, because if you become disabled and cannot earn an income, you still have the rest of your life to live. As a young worker, this is your top priority.

Last week, the Association for Savings and Investment South Africa (Asisa), in partnership with actuarial firm True South Advisory, released its 2025 Insurance Gap Study, assessing the widening gap between the amount of life and disability cover working people should have and what they actually have.

The study, which is carried out every three years, assessed the insurance levels of South Africa’s 16.1 million formally employed income earners at the end of last year. It showed that the average earner, who is 39 years of age and earns a net annual income of about R251 000, would need at least R2.1 million of life cover to ensure that their family could continue living at the same standard should they die suddenly. However, the average earner has cover of only R800 000, leaving an insurance gap of R1.3 million, meaning they are only 38% covered.

The lack of disability cover was equally concerning. The study showed that the family of the average earner would need disability cover of R3 million to maintain their standard of living. With actual disability cover of only R1.2 million, the gap per family is about R1.8 million. In other words, the average family has only 40% of the cover it needs.

Besa Ruele, a member of Asisa’s life and risk board committee, said that, according to actuarial statistics, about 440 income earners are expected to die each day in South Africa this year, while 145 are likely to become disabled. Put another way, about 214,000 households will need to deal with the death or disability of a breadwinner this year, and most of them will be forced to either lower their standard of living or find alternative sources of income.

Ruele said the financial impact on families can be dire when an income earner suffers a permanent disability, since the family size does not decrease, as it would after a death. In fact, a disabled person usually has more expensive needs, often requiring a higher level of medical care. 

Types of disability cover

There are essentially two types of disability cover – lump-sum cover and income protection cover.

• A lump-sum policy pays out a lump sum on proof of disability, and it is up to you or your family to invest it in such a way as to provide a sustainable income.
• Income protection cover pays you a monthly income as if you were continuing to earn it. This would be at a chosen percentage of your pre-disability income and increase at a certain inflation-related rate per year. Note that it pays out only up until retirement age – you will still have to fund your retirement, using part of your income to go towards retirement savings.

According to Bidvest Life’s 2024 Claims Report, clients were 15 times more likely to claim on income protection benefits than on death benefits, and 43 times more likely to claim for income protection than for permanent disability. The report shows that younger South Africans drove nearly half of income protection claims, while death claims were concentrated among older clients.

Ideally, you need a mix of both income protection and lump-sum cover. Financial experts agree that lump sums are suitable for immediate, once-off payments, such as settling your home loan; adapting your motor vehicle or home to cater for your disability; and providing for the future educational needs of your children.

But lump-sum policies may fall short of providing for your future income needs. Investing the lump sum to provide an ongoing income requires assumptions about inflation and future investment returns, which could fluctuate significantly. In addition, there is the danger that you may squander all or part of a lump sum on things other than income needs.

While income protection is generally more expensive than lump-sum cover, an added advantage is that it also covers temporary disability – such as extended time off work recovering from a road accident. In fact, 36% of Bidvest Life’s income protection claims were for non-permanent conditions that would not have qualified under lump-sum disability definitions.

While your employee benefits may include disability cover in some form, it’s advisable to speak to your financial adviser to find out what additional private cover you need to ensure that your family can maintain their standard of living should something happen to you.

PERSONAL FINANCE