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Why you shouldn’t cancel insurance policies – even in tough times

If you feel the pinch of the cost of living, cancelling your insurance cover is not a good idea, as any adverse event will ruin you.

Although insurance is the first thing many consider scrapping when they have to cut their budgets, insurance can be a way to keep saving in tough times.

In challenging economic times, it is essential to budget for savings, but also to protect those savings against unforeseen events and risks, Reuben Oosthuysen, customer engagement manager at Hollard Life Solutions, says.

Oosthuysen says savings can play an important role in helping you deal with unforeseen circumstances.

“We also save for specific goals, such as further studies, buying a car or first home, welcoming an addition to the family and planning for retirement. As budget-tight consumers we must realise that insurance, along with savings and investments, can play a key role in achieving these goals.”

Affordability is often the issue, he says. “In tough times the ability to save and still keep up with monthly insurance premiums seems impossible. This can tempt consumers to cut out grudge purchases like insurance but it is in challenging times that savings and insurance come into their own.”

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Planning for the unexpected

Without any savings to rely on, consider the impact of a loss due to unexpected circumstances, Oosthuysen says. “Loss of income due to retrenchment, disability, severe illness, or death, without appropriate cover, could force you to use your savings to cope. Insurance helps you to cope with such unforeseen circumstances, across the many things that can go wrong.”

Struggling consumers often either cancel or default on their insurance policies. However, Oosthuysen says there are alternatives. “You could take a break from short-term saving to maintain the risk cover that protects your family from financial ruin. For example, an endowment life policy can serve as a long-term savings solution.

“Although our first thought would be to rather maintain our savings and not insurance cover, consider for example, whether our savings would ever be enough to adequately enable us to afford the cost of losing a home, car, or income.”

He says your ability to work and earn an income is your most valuable, yet often overlooked, asset. “Illness or disability can jeopardise future personal and financial aspirations. If you are the primary breadwinner in your family, insurance products like life, disability and critical illness coverage ensure that your loved ones are financially secure in the event of your inability to work.”

Having life cover in place will help ensure that you can still cover expenses such as a home loan, education, or general living expenses when you are no longer able to work.

In the event of an unforeseen circumstances, or your untimely death, how will your loved ones cope with outstanding debts, such as a bond?

Oosthuysen says loss of income is another risk. “In the current economy, businesses are grappling with closures and workforce downsizing. Within this context, It is important to look at income protection that covers your income, should you lose your job and pays you some, or all, of it for a set period of time.” 

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Life insurance has extended advantages

A life insurance policy can have extended advantages, such as a lump sum payout to beneficiaries on the passing of a breadwinner and providing more comprehensive benefits in the eventuality of disability and/or critical illness.

Oosthuysen says you can also consider asset protection that covers your valuable belongings. While rainy day savings are essential, they may not cover all of the unexpected expenses, such as significant vehicle repairs typically handled by motor insurance.

And if you are unable to afford insurance? Oosthuysen says rather than cancelling your insurance and having no form of cover, consider strategies to reduce your monthly premium as this will give you peace of mind knowing you still have some cover in place.

“To ensure affordability, you can reduce your monthly premiums by consolidating your short-term policies, bringing different types of policies, such as car and home cover, together into a single policy. This can save on commercial and administrative costs. Alternatively, you could also consider a change of the sum assured or benefits selected under the policy to reduce monthly premiums.”

Insurance offers a complementary strategy to savings without a doubt. “It can help with some of life’s setbacks and serve as a valuable tool to secure your future if you understand the benefits and use it optimally.”