As the cost of living continues to soar, many South Africans are struggling under the financial pressure of rising inflation. The prospect of unchanged interest rates, with the Reserve Bank likely to maintain the repo rate at 8.25%, brings no respite from the mounting pressures on people's pockets. In these challenging times, it's crucial to carefully assess every expense to avoid cutting essential items like life cover and retirement savings.
Roxanne Tobias, Actuary & Head of Marketing and Communications at Sanlam Risk & Savings, says, "Life insurance and retirement savings are not just expenses; they are vital safeguards for your financial future. Skipping contributions can have severe negative impacts both now and in the long term. If risk cover is cancelled, it could be costlier to reapply in the future, with higher premiums. Before you cancel cover, ask yourself if you could bounce back financially from a costly 'life curveball'."
In time of financial pressure, Tobias advocates shifting priorities and going back to basics with a budget. "Understanding and managing your budget is the first step to ensuring you retain crucial insurance and savings products. By meticulously tracking your spending for a month—using a budgeting app or even a simple paper record—you can identify and eliminate unnecessary expenses. This process will help you create a realistic budget that prioritises essential costs."
If money is extremely tight, Tobias suggests considering these options rather than cancelling risk cover:
1. Reduce benefit amounts: Instead of cancelling your cover, you can opt to lower the benefit amounts. This allows you to maintain some level of financial protection in the event of illness, disability, or death. Reduced cover is better than none at all.
2. Premium holiday options: Some products offer a premium holiday option, allowing you to temporarily pause payments without losing cover. Contact your provider to see if this option is available to you.
3. Healthy lifestyle discounts: If you have quit smoking for over a year, you may be eligible for lower premiums. Contact your insurer to request a revision of your rates.
It’s important to remember that costs will continue to rise, and life events such as health issues or job changes could make it difficult to obtain the same cover later if you cancel your policy now.
Tobias says, "Where your retirement savings are concerned, it might be tempting to cancel your plans completely, but even in this scenario you may be able to get some short-term relief by temporarily reducing your contributions. And where applicable, you can take a “payment holiday” from your retirement annuities."
Before making any changes, it is important to consult with a financial adviser to conduct a thorough risk analysis for you. This will help determine the necessary cover needed and assess your ability to manage risks and reach savings goals if you decide to reduce insurance cover and savings. While insurance may seem like a 'grudge' purchase, foregoing it today can lead to far greater challenges tomorrow.
Tobias concludes, "Getting ahead starts with getting started. That means thinking about the future and planning for it today. A financial adviser can walk this journey with you and figure out smart ways to cut costs, prioritise pivotal expenses and save more.
“Sanlam is committed to helping our clients to prioritise their long-term financial security and protect their loved ones by making informed decisions about their insurance and savings. Now is the time to adopt a long—term mindset to consider the potentially costly implications of cancelling cover should curveballs arise later."
PERSONAL FINANCE