Times are tough! Interest rates have risen from 7.75% to 11.25% (a 45% increase) over the last 12 months, markets are volatile worldwide, and our local and world politics resemble a circus act. Most of us are feeling the strain on our monthly budget and looking for where we can cut unnecessary expenses.
Insurance is always a grudge buy, so this is an area we often look at to see if we can make a change and save. Let’s look at this in more detail.
1. Medical aid cover. Something we all need, especially in SA. We can move to a lower option, but often we are already there.
2. Short-term insurance covers our home, house contents, cars and other items that we value and would battle financially to replace. It is difficult to cancel this, but getting a second opinion to see if premiums can be reduced is worthwhile.
3. Life, disability, and dread disease cover tend to escalate in cost annually, so this number can cost us a lot, but what happens if we cancel this and something happens??
The first 2 points above are relatively easy to address. Because most of us have claimed through our medical aid or short-term insurance at some point, we understand the benefits of these risk contracts. Life and disability are, however, a lot more confusing. Knowing what we have is more challenging to determine.
We recently dealt with a retired couple who had duplications of cover, which was structured on an aggressive contribution pattern and costing over 25% of the pension they were getting in. The previous adviser had not revisited their situation and told them that what they had was not needed anymore. Tens of thousands of rands could have been saved had this been done.
Very often cover is “sold” and not bought. Ensuring a vehicle is easy, as we know the book value. However, insuring future income is more complicated. Furthermore, as our situation changes, so should our needs around cover. We understand that the majority of South Africans are underinsured. Still, I assure you that many are over or incorrectly insured.
Understanding what risk cover one needs, when is crucial, and the implications of term vs whole life cover and different contribution patterns are some nuances that confuse things even more.
Reviewing your risk cover should be done at least every few years and especially when there is a change in our circumstances.
Being overinsured is a waste of money, but being underinsured is a waste of a life.
Dirk Groeneveld, Certified Financial Planner
t. 083 261 9287
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