“Many people make rushed financial decisions when they are faced with rising day-to-day expenses,” says John Manyike, Head of Financial Education at Old Mutual. "Not paying your life cover premiums is often one of them. While this may seem like a way to get the money and breathing space you need right now, the many long-term benefits of life cover will be lost and could negatively impact your family - the very people that life cover is meant to help.”
For example, if your family depends on your salary of R10 000 per month to survive, this amounts to lost income of at least R1.2 million over 10 years should you not be around due to death. Life cover can replace this lost income. However, not paying your premiums will cause your policy to lapse – this means it is cancelled and your cover has stopped. If you added disability cover or severe illness cover to your life cover policy, you are losing the provision you’ve made for these needs as well.
“The good news is that a decision to let your policy lapse can be reversed if you move quickly,” says Manyike.
The best way to avoid your policy lapsing is to:
- Know the terms of your policy and the rules around lapses of cover, which are stated in your policy contract.
- Check with your financial adviser whether your policy allows you to reduce your premium (and cover) for a while or if there is premium-skip option, to offer some short-term financial relief.
It is important to note that if your policy lapses and you then purchase a new policy later in life, the cost will be higher because you will be older and your health may have worsened. "Ultimately, life insurance is about investing in you and your family’s long-term peace of mind. Before letting your policy lapse, you should check on what you are spending, draw up a budget and see where savings can be made to keep your life cover in place,” says Manyike. “If you find that after looking at all the options, you still need to cut costs, speak to your insurer about possibly reducing your premiums. It is better to have a policy with reduced benefits rather than no cover at all," concludes Manyike.
Protect your family’s future; get life insurance cover that suits you
Visit your nearest Old Mutual branch to speak to one of our accredited financial advisers.
*This article does not constitute financial advice. Old Mutual Life Assurance Company (SA) Limited is a licensed FSP and life insurer.”
