The short version: a cover gap analysis has two parts. The first is arithmetic, done per client and per need. The second is monitoring, done across the book, because the cover in force changes without anyone telling the adviser.
Part one: the arithmetic
Work in today's money and state every assumption. The needs below are the standard set; the notes may add others.
Capital on death
What the household needs if the client dies, less what is in place.
- Income replacement: the share of the client's after-tax income the dependants rely on, for the years until dependency ends, capitalised at a real return. A common basis is 70% of net income to the youngest child's 23rd birthday, at inflation plus 3%.
- Education: the cost of the schooling and tertiary plan the family intends, per child, in today's money.
- Debt: bond, vehicle finance and other debt to be settled.
- Estate costs: executor's fees, estate duty where applicable, and a liquidity allowance. Four percent of the gross estate is a usual starting assumption for costs, with estate duty calculated separately above the abatement.
- Less: existing life cover (personal and group), liquid assets, and retirement fund death benefits.
Disability and income protection
The income the client needs if unable to work, per month, to retirement, less any income protection or group disability benefit in force. Lump-sum disability cover is compared with the capital equivalent of that income plus adaptation costs. Waiting periods and definitions (own occupation versus any occupation) belong in the record.
Dread disease
A capital amount for the costs a severe illness brings that medical aid does not cover: treatment shortfalls, recovery time, home and lifestyle changes. Bases vary; a stated number of months of expenditure plus a medical allowance is common. Whatever the basis, it should be in the assumptions table.
Emergency fund
Six months of expenditure in accessible savings is the usual target. Not insurance, but it changes how much cover is needed elsewhere.
A worked example (fictional)
A 46-year-old professional earning R92 000 a month gross, one dependant aged 15, a bond of R1.9 million, existing life cover of R2 million and income protection of R45 000 a month.
| Need | Basis | Required | In place | Shortfall |
|---|---|---|---|---|
| Income replacement | 70% of net income for 8 years at CPI+3% | R 4 100 000 | R 2 000 000 life cover; R 180 000 cash | about R 5 200 000 |
| Education | Remaining school plus a first degree | R 900 000 | ||
| Debt | Bond settlement | R 1 900 000 | ||
| Estate costs | 4% of a R 8 million estate plus liquidity | R 450 000 | ||
| Income protection | 75% of gross to age 65 | R 69 000 pm | R 45 000 pm | R 24 000 pm |
| Dread disease | 12 months' expenditure plus medical allowance | R 950 000 | none | R 950 000 |
Every figure above rests on an assumption that the adviser should confirm with the client; that is what the "[ADVISER TO REVIEW]" flags in a Tallify draft mean.
Part two: where gaps hide
Six ways a gap opens after good advice, none of which the client is likely to report.
A debit order fails, the insurer writes to the client, the client does nothing. The adviser finds out at claim stage.
Life cover moved to a new insurer; the old disability benefit was cancelled with the old policy and not replaced.
Group life and disability ended with the old job; the new employer's scheme is smaller or has a waiting period.
A policy written in 2012 without escalation is worth less every year in real terms.
A second child, a bigger bond, a business with personal sureties.
Cover is in place but nominated to an ex-spouse or an estate that will take a year to wind up.
Running it across the book
An annual review catches the arithmetic. It does not catch a lapse in month three. The practical approach is a standing comparison, per client and per cover type, of what the client used to hold against what stands today, run automatically and reported to the adviser only when something changed.
In Tallify the check starts at onboarding. The client completes the fact find through the practice's onboarding link, Tallify reads the cover in force from it, and the needs analysis sizes each need and shows the shortfall in the draft for the adviser.
After that, Tallify checks the whole book every Monday: policies marked old, lapsed or replaced are compared with current cover by type, and the adviser receives a briefing of every client with no current cover in a type they once had, or with cover reduced. When the adviser uploads a client's Astute CCP report, the contracts it lists go on the register when the intake is committed, so the "what stands today" side comes from the insurers rather than from the client's memory.
Figures and bases in this guide are illustrative. Use the assumptions your practice has adopted, and record them.
Questions
How often should cover be reviewed?
At least annually and at every life event (marriage, children, a new bond, a new job, a business started). The problem is that life events are not reported to the adviser on time, which is why a standing weekly check on the book, comparing what a client used to have with what stands today, catches what an annual review misses.
What is the difference between a cover gap and a needs analysis?
A needs analysis quantifies what a client needs. A cover gap is that need less the cover in force. Tallify's weekly cover review looks for a second, simpler kind of gap as well: cover that existed and no longer does, which needs no assumptions at all to detect.
Where does the data come from?
For a new client, from the fact find the client completes through the practice's onboarding link. After that, from the practice's own policy register, and ideally from an Astute CCP report run with the client's consent, which shows what the insurers actually hold rather than what the client remembers. In Tallify the adviser uploads that report on the client's intake.