Cancelling insurance policies not the answer to rising costs

The rising cost of living has left consumers feeling the pinch.

Very often insurance premium cancellations are the first thing people think of doing just to make sure they have a lot more to fulfil other immediate needs.

But executive head of financial planning at NMG Benefits, Stian de Witt, says cancelling an insurance would “increase a consumers' financial risk, leaving them unable to cover any unforeseen emergencies”.

“Cancelling or even putting insurance on hold is not the answer. Instead, people should review their policies and identify areas where amendments can be made. Any change, however small, can potentially save a lot of money in the long run while still ensuring that a person is covered in the event of a crisis,” he says.

"Speaking to an insurance adviser is the best starting point before a person makes any significant decisions around their insurance.

“Advisers are trained to provide policyholders with the right guidance and support to help them control their financial situation even in difficult times. People must understand how any short-term decisions can have far-reaching implications on their future finances.”

De Witt says reviewing an insurance policy is important.

“For example, the beneficiaries named on a person’s life insurance policy may need to change for whatever reason, including adding more beneficiaries.

“Insurance is a critical safety net in times of trouble. It gives people peace of mind knowing that their financial future is secure. Insurance premiums should not be seen as a grudge purchase. Instead, it is a legacy to leave behind for their loved ones,” says De Witt.

There are significant factors that require people to revisit their insurance policies and De Witt shares three of them:

Increases in insurance premiums: Research on the SA life insurance market found that premiums are increasing by more than 5% annually since 2021... Policyholders should therefore reach out to their insurer or financial adviser and discuss any recent changes on their monthly premium to find out where any amendments can be made. In this way, their premium will better reflect their available budget.

Changes in circumstances: People’s personal needs are continually changing. It is important to notify the insurance company of any events that may affect a policy and claim payout. Examples include getting married, starting a family, moving or relocating, clearing or adding debt and even reconsidering retirement plans. All of these life events will have an impact on a policy. It is therefore important for policyholders to make sure all the relevant details are kept up to date.

Lifestyle changes: Hybrid work has improved every aspect of a person’s wellbeing. Research has shown that employees now have a better work-life balance than before which also results in improvements in their job performance. With many people spending less time commuting, the savings on fuel and other travel expenses can potentially be reallocated to their insurance policies.

Ultimately, it is best for people to review their insurance policies once a year. This provides them with the opportunity to take stock and assess whether their insurance needs have changed and whether they need to streamline their policies to better meet their financial situation.