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Four reasons NOT to cancel your life cover
If you are in a financial tight spot, it may cross your mind to cancel your life cover with a view to “restarting” it when times improve. Don’t consider it, advises an expert.
TIMES are tough. The pandemic has affected the income of millions of South Africans.
But as people scramble to find ways to reduce their monthly expenses, there’s one monthly expense which should be last on the list to be cancelled: your life insurance.
That’s the advice from Bani Schmidt, sales and marketing executive at Stangen Life Insurance, who says cancelling your life insurance will not only remove the benefits it offers and leave your loved ones at risk, but it could be harder and more expensive to get new or the same cover in the future. Bani highlights four key reasons not to cancel your life insurance:
1. You’ll never get cover at this price again
If you think you can cancel your life insurance temporarily and take out a new policy when your finances get better, think again. The younger you are, the cheaper life insurance is.
“Every year you age, it will cost you more to replace your cover. If you choose to cancel your policy and then reapply later, your higher age will make you liable for higher monthly premiums. There also might be more stringent medical testing. And if you get sick in the interim, your application could be declined or it could be given a health loading, which will make it even more expensive,” says Schmidt.
2. You’ll leave your family exposed
You take out life insurance for one main reason: to protect your family’s financial future if anything happens to you, and to allow them to keep paying for things like education, the home loan and day-to-day expenses. If you cancel the policy, that all goes away, leaving your loved ones at risk should anything happen to you. “Ask yourself: If your income falls away, would it create financial stress to your family? If the answer is yes, you should do whatever you can to hold onto your life insurance,” says Schmidt.
3. Your debts don’t disappear when you die
The starting point for any life insurance calculation is to cover your debts when you die, and leave enough money in the estate so that your family will be able to carry on without too much of a financial impact. “Having debt means it needs to be repaid – and if you die suddenly, your bank will insist that all debts be repaid immediately, or your home and assets end up on auction, leaving your family high and dry,” says Schmidt.
4. You don’t get your premiums back
If you have an older policy that still has a cash-back value, you may get back a fraction of what you paid. But newer policies are pure risk products that carry no cash or surrender value: 100% of your premiums are used to finance your life cover. “When you cancel your life cover, your consistent premium payments over a period of years means nothing.
Getting premiums back is only made possible on life insurance policies that have a specific “cashback” add-on benefit and for which you typically would have paid more. Otherwise, if you got the benefit of cover, you cannot expect a premium in return after the fact,” says Schmidt.
The bottom line?
