ARNO JANSEN VAN VUUREN: When need swallows legacy — life insurance and the SA education reality

Education in SA has always been a thorny issue because of our country’s turbulent history, when quality education was unfairly reserved for a tiny portion of the population — a paradigm that has started to right itself only over the past couple of decades.

It is also thorny because it is widely recognised as the answer to SA’s unemployment and economic woes, but at the same time the sector faces crippling societal, funding and structural challenges, which it lacks the resources to resolve. 

One of the most pressing challenges affecting education is that too many of our children are not in school. According to the second quarter 2024 data from Stats SA, more than a third (35.2%) of those aged 15—24 are not in employment, education or training. Research also shows that for every 100 pupils who begin grade 1 only about 40 will write their matric exams, and of that 40 only 12 will go on to university or college. 

Education is the best chance our kids — and the future of our country — have. This is the one thing all South Africans, regardless of background, age or race, agree on. Why then do our dropout rates continue to soar?

The answer is complex and multifaceted, but a key contributor is the cost of schooling and education-related expenses. One 2024 research paper, “Understanding Why Youth Drop out of School in SA”, identified family-related reasons for leaving school as one of the top-three causes for dropouts — an umbrella that covers a lack of family support and household financial difficulties.

Given that I am in the business of insurance, you might wonder what role insurance has to play in this. And while there’s no existing hard data of causation, there is a correlation between a decrease in life cover and young people not getting the learning they need to set them up for employment, given that one of the main reasons people take out these policies is to provide for their children’s schooling should the worst come to be.

The SA reality is that should there be a life insurance policy payout, this money often doesn’t make it to the educational institution. Consider that of those who can afford life insurance in SA, most are underinsured by at least R1m for a death event and R1.4m for a disability event, with this gap being most prevalent in those under 30 and between 30 and 39 — typically those with younger children who have their whole school careers ahead of them.

Why are South Africans so deeply underinsured? Again, a complex question with many factors involved, including the unaffordability of premiums (consider that more than 8-million insurance policies lapsed in 2023), a general lack of understanding around what life insurance entails and onerous underwriting requirements (especially for those with existing health concerns).

In addition, many are overly confident in their employee benefits (without reading the fine print to understand their cover levels) while younger generations believe life insurance is something they need when they’re middle-aged or if they buy a house.

Given that a child’s schooling from nursery school to university can cost about R1.2m (provided the schooling is public — this will be more if it is private) if a policyholder is already underinsured by R1m, how can a payout reasonably be expected to cover education? 

There is also no way to avoid the mandatory legal fees and taxes that will be deducted, and many beneficiaries will prioritise settling their debts first — especially given that 42% of the country’s 23-million credit-active consumers are classified as debt impaired.

So, how will you fund your child’s education with what is left? Will you, as a beneficiary, move to a smaller house, sell your car or radically downscale your lifestyle? When most people are forced to choose between their family’s immediate needs or their child’s future studies, nine times out of 10 they will choose to put food on the table now and worry about schooling later.  

It can happen to me

According to actuarial statistics, more than 500 families are likely to suffer a death or disability event on any given day of the year, so while it’s not nice to think about we cannot bury our heads in the sand and say “my child’s education is secure — nothing bad will happen to me”. Yet, as all of these barriers remain across the insurance industry, what is there to do?

Historically, insurance products haven’t been needs-matched or aligned to human behaviours, but this is changing. Certain players are reimagining insurance and innovating to meet these challenges head on, with a new category of “needs-matched” insurance emerging. 

There are several types of needs-matched insurance, with education insurance — specifically designed to cover a child’s education should a death or disability event occur — being one of these. Education insurance keeps funds ring-fenced so they are paid directly to the educational institution and cannot be used for anything else, while premiums are affordable — especially if you consider the peace of mind it affords. Typically, there are also no invasive medicals or cumbersome underwriting to contend with. 

Complex challenges — like those facing the education sector — require our industry to innovate, challenge the status quo and the way things have always been done, and design solutions that cater to the context within which we operate. This is the only way to give our children a fighting chance at a brighter future. 

• Jansen van Vuuren  is MD at education insurance company Futurewise.