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5 September 2018
In addition, there is a very real risk that interest rates will increase further, and rising expenses and changes to your personal circumstances can affect your ability to afford insurance coverage. However, it is very important to examine every expense in order to avoid cutting expenses that are in fact essential, such as your life cover and your retirement savings.
The first step towards ensuring you can retain your insurance and savings products is to understand your budget. While this may sound like a cliché, by keeping record of every cent you spend for a month – whether using a budgeting app on your mobile phone or keeping a spare sheet of paper in your purse or wallet – you would be able to identify unnecessary spending. Only once you have an idea of what you are spending can you begin to draft an honest budget that will help you regain control of your expenses.
Your life insurance and savings are in fact high priority expenses, as failure to continue with your contributions will impact you negatively in both the short and the long term.
If you are considering cancelling your insurance during a tough time, it is important to first note that there may be options available to you that will enable you to continue with your policies:
With each year, costs will continue to rise and in the case of life insurance it is important to remember that certain life events, such as ill health or a new job, may make it difficult to get cover for the same premium when you try to renew your policy after you have cancelled it. Where your savings are concerned, it might be tempting to cancel your plans completely, but even in this scenario you may be able to get some short-term relief by temporarily stopping your contributions on a unit trust portfolio. And where applicable, you can take a “payment holiday” from your endowment policies or retirement annuities (but first make sure you won’t pay any penalties if you do).
Before making any changes, it is important to speak to a financial adviser so that a thorough risk analysis can be conducted, to determine what the risks are, what should be covered, and whether you would be able to carry the risks, before reduce your insurance cover and savings. Whilst insurance is usually a grudge purchase, as you are essentially buying protection against something you hope will not happen, one must always bear in mind that foregoing this protection today may cause far greater issues for tomorrow.