South Africans cutting out vital cover as higher rates bite

South Africans cutting out vital cover as higher rates bite

As interest rates crept up again this week, many people are feeling the financial pressure and creating extra funds in their budgets by cutting out insurance cover - a practice that could leave them in financial ruins.

Craig Deats, National Insurance Sales Manager at MortgageSA, South Africa's leading bond originator and provider of insurance cover for all matters property, says that generally South Africans tend to have a 'negligent knee jerk reaction' to higher rates and often don't consider the full impact of their choices.

"Looking at the history of behaviours on our insurance portfolio, we can certainly say that there is an increase in the number of people not paying their insurance premiums in hard times.

"Human nature is such that general luxuries are not first off the budget list, but rather certain insurance policies because they are perceived as grudge purchases to start with. People seem to be willing to take a risk. But that could become a real problem should they need to finance a loss out of their own pockets at a time when they are feeling the pinch anyway.

"Should something go wrong when they have no cover, it's a double whammy of financial hardship that could be ruinous." Deats says that typically, household insurance and life cover are the monthly expenses that people skimp on when they are feeling a financial squeeze.

"People believe that they need DSTV, dinners out and other tangible consumption and tend to feel things like insurance cover are only for seemingly unlikely events so tend to stop paying. "The risk seems to be small and the reality is the chances of something happening are actually small but the repercussions could be life changing for yourself and your family should you need cover and not have it."

Deats says though it is a basic tenet of sound financial planning to keep paying insurance premiums and cut costs elsewhere. "People should draw up a budget and take a long hard look at discretionary expenditure, particularly on luxury items. That's what needs to drop off the budget first.

"It's also a very opportune time to get new quotes because you may have been paying too much for premiums. It is often possible to negotiate lower premiums especially if your circumstances or lifestyle has changed."

Deats notes that if people are correctly engaged by their properly qualified financial planners, the necessity of maintaining insurance despite the financial pressure would have been understood and they would know that policies can't be cancelled. "Would you cancel your car insurance or medical cover if you were cash flow strapped"

"Not likely, because generally we understand the importance of these covers as well as the risks of not having them. However when it comes to life cover and household insurance, the benefits seem so far off and the risk remote so we take needless risk."

Hello ooba news

As interest rates crept up again this week, many people are feeling the financial pressure and creating extra funds in their budgets by cutting out insurance cover - a practice that could leave them in financial ruins.