The perils of cancelling insurance cover when the going gets tough

In the face of economic challenges marked by high inflation and the high cost of living, South Africans are grappling with tough decisions to cut costs, often inadvertently sacrificing critical insurance coverage.

Recent data from the Association for Savings and Investment South Africa reveals a staggering R3.6-trillion worth of life, severe illness and income protection policies lapsed in the first half of 2023, underscoring the financial hardships experienced by many consumers.

Reuben Oosthuysen, customer engagement manager for Hollard Life Solutions, warns against the perilous consequences of hastily cancelling insurance policies. The backdrop of a constrained economy, coupled with high unemployment rates and job losses, forces consumers to tighten their belts and make difficult choices, with affordability emerging as a primary driver behind the surge in policy

Oosthuysen emphasised that the repercussions of cancelling life insurance, disability cover, or income protection can lead to severe financial hardship for households, especially in the event of unexpected crises.

“Consumers should exercise extreme caution when making this decision, as financial constraints render people more vulnerable to additional financial shocks,” he said.

Oosthuysen advised the adoption of a thoughtful approach to insurance decisions, emphasising the careful review of policy documents and consultations with insurers and financial advisers.

He said consumers needed to communicate with insurers before resorting to policy cancellations, suggesting that effective financial planning and adjustments could provide protection without drastic measures.

To alleviate financial strain for individuals facing budget constraints, Oosthuysen provides five strategies to lower insurance premiums without completely forgoing coverage:

  • Adjust coverage amount: Reduce life or funeral insurance coverage amounts to decrease monthly premiums.
  • Review number of covered lives: Assess if it’s possible to decrease the number of individuals covered by the policy, thereby lowering monthly premiums.
  • Consolidate policies: Combine multiple policies to eliminate fees associated with each, making overall premiums more affordable.
  • Switch to different cover: Explore alternative types of coverage with a more favourable balance between premiums and benefits.
  • Review policy benefits: Temporarily reduce certain benefits or opt for more affordable alternatives to manage overall premium costs.

“It is important to create a budget to gain a better perspective on all financial transactions. This would be crucial in understanding areas that can be trimmed. It is also important to seek guidance from your financial advisor or broker to tailor your policy to changing circumstances.

“Check for grace periods permissible for a policy, to take advantage of opportunities that allow for late premium payments or premium holidays that allow policyholders to take a break from paying premiums,” Oosthuysen said.

“Insurers are also human, and we understand that policyholders are facing financial challenges. It is important that policyholders reach out to discuss payment plans or temporary coverage reductions to avoid completely cancelling their policy.”

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