How to cut spending while keeping your long-term insurance

Long-term insurance is a grudge-purchase to begin with, which is why it is often one of the first things consumers cancel when the financial pressure of rising interest rates, fuel prices, electricity skyrocketing, high inflation, and general cost-of-living forces them to stop spending money.

Distinguishing between what you need and what you want is becoming increasingly important, as households have to fork out more to cover the cost of necessities and service their debt. Meanwhile, salaries among largely middle-class South Africans increased only slightly, if at all.

Cancelling insurance when you have to cut spending is not a good idea, says Sonja Oosthuizen from Standard Bank Insurance.

“In these tough times, everyone is looking for ways to save, but if you have been toying with the idea of cancelling your insurance cover and revisiting it sometime down the line, you may want to reconsider.”

While it is perfectly rational to spend mindfully and reduce unnecessary expenses to create more room in the budget to cover additional costs in the current climate, cancelling your insurance may not be the best way of doing this, she says.

Not maintaining adequate cover could also have serious consequences for your financial position in the long-term, as being insured protects you and your loved ones from potential financial ruin.

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Fewer consumers buy long-term insurance

Long-term insurance statistics from the Association for Saving and Investment South Africa, show that consumers not only bought fewer risk policies in the first six months of 2022, but a higher number of policies also lapsed because consumers stopped paying premiums for a risk policy with no accumulated fund value.

A lapsed or unpaid policy results in cancellation of the cover.

“Although it seems that you can do without life insurance now because you are not gaining an immediate benefit, it is important to keep in mind that if you do not have life insurance, your family can be saddled with overwhelming financial responsibilities with no way to resolve them,” Oosthuizen says.

With life cover, your dependents receive a cash payout when you die that will help them to cover outstanding debts and take care of day-to-day expenses, such as food and transport, monthly expenses such as school fees, and home loan repayments, covering funeral costs, and even future expenses, such as tertiary education.

“Instead of cancelling your long-term cover, reach out to your insurer to understand the available options to make the expense more affordable by, for example, reducing the policy’s face value or cover amount. This will result in lower coverage and while lowering your coverage is not ideal, it is far better to have something than nothing,” she says.

The same applies for short-term insurance of your car, home or funeral cover.

Oosthuizen says if you cannot afford the premiums, do not stop your insurance cover entirely.

“Instead, start by contacting your insurer about payment options and potentially restructuring your policy following a needs analysis, which is a review of your assets, business, lifestyle and family considerations.”

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Consequences of stopping long-term insurance

She says it is important to remember that people who cancel their insurance cover could be faced with higher premiums when they take out insurance again due to lifestyle changes such as age, health or family responsibility.

In addition, if you own a car or a home, cancelling your insurance could be a breach of your financing agreement with your bank.

Oosthuizen says insurers are not blind to the financial stress of consumers.

“Fortunately, insurers are now starting to offer flexible options that make it more affordable for people to make necessary provisions and adjustments to their cover as their circumstances change. Some of these options can include a payment arrangement, premium holiday, cover reduction or alternative products.”

During the pandemic, Standard Bank launched its Flexible Funeral Plan, which offers crucial, personalised benefits. As it is a flexible product, you can choose what you pay and adapt benefits at any time.

Oosthuizen says that if you go through a financially difficult time, you can lower your sum insured for a period or do away with some added benefits.  

“By cancelling your insurance, you are placing yourself in a vulnerable position should anything happen to you, your possessions, your home or your vehicle. No insurance means no protection in the event of a fire, storm damage, an accident or theft.”

Her advice is that if you have financial challenges, you should contact your insurer about the options available to remain covered, that could include restructuring your cover, payment holidays or cashback offerings.