Consumers who are in a very tight financial spot may rashly consider cancelling their funeral or life cover – with the intention of resuming the policies later.
This is a trend Lee Bromfield, CEO of FNB Life, has observed over the years. But cancelling your cover has consequences.
"Given the high cost of living and uncertain economic environment, being caught off guard by a funeral, for example, which may cost R30,000 on average, can place you in a far worse financial position," Bromfield says.
He urged consumers to ask themselves these questions before cancelling their policies:
1. Are you really saving?
Funeral cover, for example, is currently one of the most affordable forms of insurance available to consumers in South Africa. For instance, an adult aged between 18 and 64 can pay as little as R35 a month for R10,000 cover. So consider downgrading your premium to a cheaper one, instead of cancelling it completely.
2. What are the consequences?
When your policy lapses, you will lose out on all the premium payments you had made -- and you can't '"pick up where you left off". Furthermore, you and your beneficiaries would have to complete a six-month waiting period before being covered for natural death, if you were to take up a new policy.
3. Have you re-evaluated your budget?
Consider drawing up a comprehensive budget and separating needs from wants, to establish what you can really do without. This will help you save by cutting back on luxuries and ensure that you have enough money reserved for your needs, including your life or funeral covers.
"If you are unable to resolve the situation by yourself, consider seeking expert advice," says Bromfield.
4. Do you have a plan B?
Many consumers who have cancelled their policies and do not have an alternative turn to unscrupulous lenders, such as mashonisas, who can charge up to 50 percent interest or more on a loan.
"If you find yourself having to make tough decisions due to financial difficulties, always weigh the consequences and alternatives available before taking drastic measures that can expose you to even higher financial risks," says Bromfield.