I’m too young for life insurance … right?

To insure or not to insure? When you’re young, it’s not an unreasonable question to ask, particularly if you don’t have dependents. Your chance of dying of a dread disease or an illness is low, but statistically you are more likely to be injured in a car accident.

Death is not the reason you need insurance; it’s surviving a trauma and being unable to provide an income for yourself that is the real risk.

Your biggest asset is not your car, your flat-screen TV or even your computer, according to Nick van der Nest, head of risk product development at Liberty. It’s your ability to earn future income.

“From recent experience, we’ve found that approximately 75% of deaths in people under the age of 35 are as a result of non-natural causes, for example car accidents. We also know that only a small proportion of car accidents result in death — the majority result in injuries. The more serious the injuries, the less likely you are to achieve your future earnings potential,” says Van der Nest.

PPS corporate actuary Chris de Klerk warns that the high prevalence of accident-related deaths in South Africa may mean that the younger population should re-evaluate their insurance cover.

PPS reveals that between 40% and 50% of death claims are due to unforeseen accidents. Between 2006 and 2009, 64% of life cover claims from accidental causes were as a result of motor vehicle accidents, and 54% of such claims were from policyholders under the age of 30. Thus, even though it is the young people who are most likely to be underinsured for loss of life, this age group contributed the highest percentage of claims.

“It may seem like an unnecessary expense, but if you have a family to look after, or you’ve taken credit out in your name, having a policy will ease the financial burden on your loved ones, should anything happen to you. After all, someone has to settle your debts.” says De Klerk.

“Most young people are under financial pressure and there is generally a limited budget available for life insurance products, so the aim should therefore be to buy the product that best suits a particular need,” says van der Nest.

Closing the cover gap
There are products in the market that only provide cover in the event of accidental death, alternatively, there are non-life cover risk products, such as dread disease or lump sum disability. Some products are specifically tailored for the “accident hump” age group (18 to 30 year olds).

De Klerk points out that many people in the 18 to 30 age category take part in “extreme activities” — quad-biking, bungee-jumping, scuba diving, racing and so on. The risk of a mishap is high and many accidents result in fatalities. Crime and violence are also part of the risk profile in South Africa — they account for the second main cause of accidental deaths.

Ultimately, the odds of disability and accidental death are fairly low, but the risk is indisputably there. Assess your needs. If you’re in a high-risk category (you’re a 25-year-old male and you scuba dive, for example), speaking to a financial adviser won’t hurt. Cover that suits your very particular needs is obviously the way to go.

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