The festive season is a time of joy and celebration. There’s the food, the decorations, the family fun, the presents, and all the extras that make this time of year as special as it is. Make no mistake, if there’s ever a time when people are going to throw caution to the financial wind, it’s during December. This is why Christmas is quickly followed by a time of financial stress.  

After the expensive holiday season, many South Africans find themselves struggling to make ends meet in January. To cope with this stress, it’s natural to look at ways to cut back and just hope that you’ve done enough to ride out the first few months of the year.  

One of the biggest areas where these cutbacks take place, is insurance. More South Africans opt to cancel their insurance policies as a means of alleviating this financial pressure. The problem is that if you do this, you’re risking more than you’re saving.  

With this in mind, here are the most popular policies that people have regretted cancelling, and why it’s a bad idea. 

Your Life Insurance  

The typical mindset that too many South Africans have towards life insurance is that it’s a ‘grudge purchase.’ Something you can’t see touch, smell or hear, and the rewards of which aren’t for you. For that reason, a lot of people find it relatively easy to cancel their policies. 

Reasons you’ll regret cancelling your life insurance policy: 

• You’ll pay more later, because age is a key factor in calculating your premium, and you’ll be older than when you first took out your policy, which will make your new policy more expensive. 

• When you’re getting your new policy, you might find out that you’re ill and don’t qualify to get cover anymore. 
• You could pay more (again) – and this time it’s not just for being older, it’s if you’ve discovered that you’re sick and your insurer has put a health loading onto your premium to account for added risk. 
• You’ll lose all the premiums you’ve already paid (you don’t usually get your premiums back), so it’s money down the drain if you cancel. 
• Anything can happen at any time, so cancelling even for a short while exposes your loved ones to the risk of not receiving any financial assistance if something happens to you when the policy is inactive.  

Your Retirement Plan  

It’s tempting to pull out of your retirement plan, but this could dictate your future financial health in a way that spells disaster for your older self. Your retirement savings is the money that only belongs to you when you retire and putting the brakes on these savings means you won’t have enough when you’re too old to work.  

Additionally, if you withdraw from your fund early, you could be heavily taxed and lose much more than if you had to look at different ways to cut back and make it though a few tough months.  

Your Car Insurance 

Eliminating your car and home insurance is, frankly, a dangerous financial tactic. It’s also the most popular, because no one really understand that cancelling their car insurance could cost more than the money they’d save.  

A few reasons you could regret cancelling your car insurance: 

• This policy could be your only means to pay for the theft of or an accident involving your car. 
• Even safe drivers have accidents, so you could still be liable for hundreds of thousands of Rands in damage claims – or you could face a lawsuit against you. 
• If you’re car is financed, cancelling your policy would put you in breach of your financing agreement and the bank may take your car back or take out insurance on your behalf and add it to your monthly instalment.  
• You could pay a cancellation fee to cover the administrative costs for cancelling.  
• Cancelling damages your risk profile, meaning that the longer your car is uninsured, the higher your premiums are likely to be when you take out a policy again. 

What Should You Do Instead? 

Cancelling expenses seems like a necessary evil, but the reality is that these decisions can put you and your assets at great risk. You absolutely don’t have to cancel insurance policies and other financial services in order to reduce your costs. 

Unfortunately, a lot of people use an ‘all or nothing’ scenario, when in fact, there may be other solutions. For instance, when it comes to your car insurance, you can either chat to your insurer about downgrading your policy (if you’re able to) or use the AA Insurance Supermarket to compare over ten car and home insurance quotes and switch to cheaper cover.  

As long as your cover remains the same, you’re not likely to face additional risk by changing to a cheaper insurer. 

The fact is that these policies and plans are an investment. This is especially true of life insurance. Often when people buy a new car, they’ll insure the car fully but not themselves – and that’s in spite of the fact they are the main breadwinner driving the car. 

Ultimately, this is when the true value of a financial planner comes out in a time of crisis, advising you to cut the spending in the right areas, whether that means cutting down on your favourite hobby or opting for one winter coat instead of three. 

Feeling informed?  

We trust that this advice is helpful, and don’t forget that AA Inform is home to a range of useful tools and resources – including a Free Vehicle Valuation Report, and a Free Credit Report so you can check your score and make sure you’re taking steps to maintain a healthy financial background.