By: Reuben Oosthuysen
The Association for Savings and Investment South Africa (ASISA) recently reported that a staggering R3.6 trillion worth of policies covering life, severe illness, or income protection lapsed in the first six months of 2023. This is indicative of the economic hardships currently being faced by many South Africans. However, Hollard Life Solutions cautions against policy cancellations, as the consequences to the consumer could be more severe in the long run.
Against the backdrop of a constrained economy, high unemployment rates, and job losses, consumers are being forced to tighten their belts and find ways to cut their monthly expenses. Affordability is a key driver behind the excessive life insurance policy cancellations
It's a harsh reality for many South Africans that balancing household budgets and coping with the relentless rise in living costs has become increasingly difficult. Often one of the first sacrifices made in challenging financial circumstances is that consumers cancel their insurance policies.
Consumers should exercise extreme caution when making this decision, as financial constraints render people more vulnerable to additional financial shocks.
For example, should the primary breadwinner in a family pass away or become unable to provide for the household due to illness or disability, the family may face even more severe financial hardship without the protective cushion of life insurance, disability cover, or income protection. This may lead to additional expenses, depleting their savings and adversely affecting their quality of life. This in turn can have extended consequences, including impacting long-term financial goals, such as retirement savings.
The reality is that life is unpredictable, and unforeseen events can strike at any time. Insurance policies serve as a safety net to help families when there are unexpected crises. Cancelling a life insurance policy is removing that safety net at a time when it is most needed.
Policy cancellations carry not only immediate and dire implications for policyholders, but also long-term repercussions.
Policy cancellations expose individuals and their families to potential financial ruin in the face of unforeseen events. Should a policyholder opt to cancel their policy, they may find it more expensive to acquire life insurance again at a later stage, as life insurance is priced based on the age of lives covered, as well as other health factors. Any of these factors could lead to insurance costing more at a later stage. Furthermore, policyholders may forfeit any cash-back benefits accumulated over time.
While it may be difficult to keep up with the rising cost of insurance premiums during financially challenging times, cancelling policies should be a measure of last resort.
To manage the impact of premium hikes and empower policyholders to maintain their coverage at affordable rates, Oosthuysen suggests a range of strategies that can be explored to help financially constrained consumers reduce premium costs without abandoning insurance altogether. I recommends the following:
Consider reducing the coverage amount for life or funeral insurance instead of cancelling the policy, as this would reduce your monthly premium.
Evaluate whether you can reduce the number of covered lives on the policy, as each insured individual contributes to the monthly premium.
Explore how you can consolidate policies to eliminate the payment of multiple policy and debit order fees. In turn, this will help you to access more affordable premiums.
Consider switching to a different type of cover that may provide a more favourable premium-to-benefit ratio.
Review the policy's benefits and select a more affordable option or temporarily reduce some benefits.
In addition, policyholders can opt out of annual benefits and premium increases. The terms and conditions would be applied in this instance; however, there are a number of ways to manage premium payment methods during challenging financial times.”
To avoid making hasty decisions about insurance policies, policyholders should read through their policy documents carefully and engage with their insurers or financial advisors.
Furthermore, 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’s 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.
Insurers are also human, and we understand that policyholders are facing financial challenges. It’s important that policyholders reach out to discuss payment plans or temporary coverage reductions to avoid completely cancelling their policy.
During these financially challenging times, effective financial planning and insurance adjustments can provide protection without resorting to complete policy cancellations.
* Reuben Oosthuysen is the customer engagement manager at Hollard Life Solutions.