Life insurance is in an interesting space in South Africa right now. Even as some of us try to reduce our expenses at a time when the economy is contracting and disposable income is under threat, we have also never been more aware of the effect of an illness on our ability to keep working. 

Life insurance can feel like a grudge purchase until you need it, which is why many employers provide some compulsory level of group cover and deduct the cost from staff salaries. But employer-provided life insurance isn’t guaranteed to cover you sufficiently, and most employers also don’t provide severe illness cover by default. 

The employer and its group life insurer understandably try to keep costs down by prescribing a minimum level of benefits for employees. But ask yourself: is the minimum enough, especially since, statistically, severe illnesses are so prevalent in South Africa?

Our research into the emerging affluent, affluent and high net worth markets shows that while most people understand the importance of a medical aid and death benefit (life cover), they end up over-estimating what they’re covered for if they fall ill. Many believe their medical aids will cover them for any severe illness, without realising that medical aids have clearly defined benefits and won’t absorb the lifestyle impact or earnings loss of a severe illness or disability. 

Where people have income protection or some level of severe illness cover from their employer, they are relying on the employer to select both the insurer and the level of cover. This selection process doesn’t accurately assess what you actually need for a life-changing event. Some 67% of the respondents in our research couldn’t remember which severe-illness insurer they were with, and only 11% fully understood their policy. It’s this assumption of cover that leaves too many South Africans ill-prepared when it comes to making a claim.

Almost every employer that offers a life insurance benefit will include life cover. It’s the most straightforward and often the most cost-effective benefit. If the worst happens and you die, your beneficiaries (as determined by the employer retirement fund trustees) get paid a lump sum. 

But what about the cost of survival? Apart from your medical expenses (some of which may require extra funding for progressive treatments), there is the cost of maintaining your lifestyle, servicing your debt commitments or covering additional expenses like a private nurse. Medical advances may have turned deadly illnesses into manageable chronic conditions, but this requires funding at a time when doing your job might not be possible anymore. 

It’s these hidden costs of surviving an illness that can depreciate wealth and net worth, and the knock-on effect is debilitating. People turn to friends and family for support; they liquidate their assets; wipe-out their savings, investments and retirement nest eggs; and take on debt that’s unsustainable. 

So, with all this in mind, why don’t most people ensure that they’re appropriately covered? Why is one of the most critical protection mechanisms for the future left up to the employer to decide? 

For one thing, health is invisible until it’s not. Unless we’ve personally experienced severe illness, disability or a novel disease like Covid-19 (or know someone who has), we’re less likely to appreciate its impact. Then there’s everything else that competes for our attention and money: paying off debts, prioritising other expenses, relying on savings for rainy days. 

It's important that you don’t leave your life insurance cover up to your employer alone. Protect yourself and your family against financial loss by taking cover when you are younger to avoid any later exclusions on pre-existing conditions and to plug any gaps in your existing insurance arrangements.