One group of South Africans heading for financial disaster

Experts urged young South Africans to prioritise insurance early to protect themselves from financial shocks due to asset loss.

This is according to Leruo Malumo, Head of Product at Santam, who said that many young people today hold fast to the popular misconception that financial security is something to think about in the latter part of their lives.

Recent data shows that 48,1% of South African workers do not have sufficient liquid savings to cover at least 3 months of living expenses. A further 48,1% are not confident their insurance policies will cover them in case of an emergency.

“Young people need insurance because it provides a way to bounce back from the financial shock of losing a key asset,” Malumo said. “This could be a phone, laptop, handbag, or, if you’re more fortunate, a car.”

Considering how many young people do not have emergency savings, being forced to replace a necessary asset can be a huge financial blow.

Earlier this year, Schalk Fischer, Insurance Vertical Sales Leader at TransUnion, pointed out that only 30 to 40% of all vehicles on the road are fully insured. This means that 60%-70% are not insured.

“When your car is in an accident, whether it is your fault or not, there is a very, very high likelihood – 60 to 70% – that the person that you drove into, or the person that drove into you, does not have insurance,” Fischer said.

You will be left without a working vehicle, and if you do not have insurance, the cost of repairing or replacing that car will fall entirely on you.

“If the vehicle is still under payment, you still have to pay it back to the bank. Now, all of a sudden, you’re paying the bank for a car you don’t have, and you can’t replace the vehicle, putting you in a worse position.”

Building an insurance profile

In addition, just as young people need to build a healthy credit profile to demonstrate that they are bankable, they also need to build a healthy insurance profile to prove that they are insurable, Malumo said.

“The better your insurance track record, the stronger your case for a lower premium, so it’s never too soon to begin your insurance journey.”

Young people usually claim for vehicle damage or theft, house contents, and personal and portable items like cell phones and laptops.

When considering what to insure, think about the items that would be financially devastating if they were lost or stolen.

“If you are a tenant, buildings insurance will not be a requirement because that is your landlord’s responsibility,” Malumo said.

“However, you can still take out Contents insurance for things like your TV, fridge, and furniture as these would not be cheap to replace.”

When it comes to insurance for young people, Malumo believes it’s not only about what the insurance product covers but also how and why these products are suitable for them.

“Our younger clients value insurance that is affordable, easily accessed through platforms like WhatsApp or embedded in other products and is suited to their modest asset base,” he said.

“They are also attracted to a culturally relevant brand that connects them to a broader vision and purpose. When these expectations are met, we are more likely to see a generation of young individuals build and secure their financial futures.”

When comparing insurance policies, Malumo cautioned young people to look further than the monthly premium amount.

“Consider excess structures, types of cover provided, terms and conditions of the policy, value-added services, claim overturn ratio and customer reviews”.

A reputable claim paying record should also be visible, proving the insurer delivers on their contractual obligations. The benefits of working with a broker who offers you the guidance needed for navigating the insurance world as a beginner.

“Brokers have sound knowledge of the insurance industry and provide valuable advice on insurance matters, ensuring their clients are adequately protected”, concludes Malumo.