Why life insurance is a force for social good
When we think of things that are good for society, we’d normally list things like lower unemployment, better education, curbing violence and crime, and maybe even a winning Springbok team… We wouldn’t ordinarily think of life insurance.
Life insurance, in this context, refers to the system of paying premiums in exchange for a big payout if/when you suffer a serious disease, become disabled or die (a little heavy, I know — my bad). Let’s call these the terrible 3.
Now yes, this isn’t the type of thing we’d like to think about, but let’s consider the impact they have on our society.
Take becoming disabled as an example; I can only imagine what a life-changing ordeal it must be. In addition to adjusting to your new life without some of your previous capabilities, there’s also the financial impact such as the medical costs, the loss of income if the disability stops you from working, and the resultant lifestyle changes to alter your house or car to adjust to a new life.
The terrible 3 always seem far away when we’re young and healthy, but let’s consider the fact that disability doesn’t have to be permanent in order to have a financial impact. A surgeon who breaks her clavicle while mountain-biking (clearly she’s better at operating than negotiating a tight downhill corner) would normally require about 6 weeks to recover. Apart from a new bike, she’d have medical costs and a loss of income to contend with.
We realise, therefore, that while we don’t normally like to give too much thought to the terrible 3, they will impact us, and the people around us, to a greater extent than just dealing with the event itself.
The Value to Society
So we’ve established that these things are more prevalent than we’d like to think (and that they always have a financial impact) but we still haven’t answered the first question about how life insurance is a social good.
To do this, let’s consider what the world would look like with and without life insurance.
The Arendse family lives in an ordinary South African suburb in a world without life insurance. Not like a post-apocalyptic dystopia where zombies roam free. Just a world without life insurance. Should Mr Arendse pass away, there would be financial implications for his family. In order to meet these, the family would either have to use the life savings they’ve built up, or their friends, relatives and community would have to contribute to support them. They might even have to sell their home and move the kids to a more affordable school (maybe even one where zombies roam free).
The passing of Mr. Arendse would therefore affect his family socio-economically for years to come and it makes it much harder (and near impossible) for them to achieve their dreams in life. Also what we discover is that the impact isn’t limited to them — because their friends, relatives and surrounding community are all financially affected by his death, their safety nets are all a little bit thinner…
Now after that doom and gloom, let’s consider the alternative world, where people have access to life insurance.
Those who want to, can contribute a small monthly amount to a pool from which money is paid out to any of the contributors who suffer any of the terrible 3. These contributions are also in line with the likelihood that you’d suffer one of the terrible 3. So a young, virile man (his wife’s words, not mine, I swear) like Mr Arendse would pay substantially less each month than his neighbour who sits on his stoep and smokes all afternoon.
In this world, when Mr Arendse goes toes-up, the pool of money that he and all others have contributed to would pay a once-off amount to settle some of the immediate expenses and his debt. It would also provide a monthly income to his family. And this would happen regardless of whether he’s been contributing for years, or just since last month. His family can continue their lifestyle, his kids are still on track to achieve their dreams and there is no drain on their family, friends or community. They are not dependent on social grants either, so even though the Boks don’t win, the whole country wins. Social good achieved.
There would still be the emotional toll of dealing with his loss, but his family and their surrounding society, have the peace of mind that their financial responsibilities are taken care of. And what’s better, while Mr Arendse is with us, he can go about his daily life knowing that even if he never claims , his contributions into that pool of money are busy helping out other families, relatives, communities and the country as a whole.
Now, if only there was an easy way to get into this insurance system.