Don’t cancel your life cover

Many South Africans are currently feeling the financial pinch and, as belts tighten, it’s natural for households to review where they can cut back on expenses. It may be tempting during such times to send life cover payments to the bottom of the priority list, but this could have dire financial consequences for your loved ones.

It’s a question of weighing up what is worse – the current burden of paying your monthly premiums or the potential effect on your family if they were to lose your income entirely in the event of a disaster.

Actuarial modelling indicates that about 380 families in South Africa lose a breadwinner every day. However, Hennie de Villiers, the deputy chairman of the life and risk board committee at the Association for Savings & Investment South Africa, notes that “over two million risk policies, covering events such as death, disability and dread disease, were lapsed within their first year in 2016.”

This means that South Africans are critically underinsured, as is highlighted in this article published on Personal Finance.

The problem with cancelling your life cover isn’t just that it is a massive risk, but that it also may be impossible to replace it as you grow older.

Many people may assume that you can simply cancel your life assurance then reinstate it when it’s easier to afford. However, premiums are likely to be substantially higher when you’re older (cover is said to cost double at the age of 45 what it costs at age 25). Health conditions may also be excluded from the cover and, in the worst case, you may even be uninsurable if you are diagnosed with certain illnesses.

Even missing the payment of a few premiums can have a negative effect. Not only may you need to undergo the underwriting procedure again, but any deterioration in your health would be taken into account when considering policy reinstatement and premiums.

So what are the alternatives?

4 possible alternatives to cancelling life cover (this is not financial advice)

  1. Reduce your monthly expenses
    Cut back on items that aren’t essential, such as your television subscription. Critically evaluate your budget and examine what is imperative versus what you just would like.
  2. Re-negotiate your debts
    Try approaching creditors or your bank to negotiate terms of any repayments. They may be willing to accept smaller sums over a longer period.
  3. Press pause on your savings
    Consider taking a ‘payment holiday’ on your contributions to an investment portfolio.
  4. Negotiate your premium payment pattern
    Request to change to an escalating-premium pattern for your life cover, which means that your initial premiums will be lower and increase over time.

Please note that the above four points are suggested options, if you would like to review your plan inside of your changing situation – please arrange a meeting for us to objectively make the best decisions according to your individual needs. It is important to stay educated about life cover and informed about affordable solutions, so please discuss this if it is a concern.

Posted in Blog, financial-planning.