Thabo Majola
12 September 2008
Failure to purchase adequate insurance could leave you in a desperate position in a heartbeat! The tricky thing about insurance is that you may not know when you need it.
Life insurance products fall in the area of Personal Finance called protection. A life insurance product is purchased generally because you have assessed that there is a risk in your life and you want to mitigate the risk by using insurance. The only time that you can prudently cease an insurance product is when you have objectively assessed that the risk you were mitigating against no longer exists.
Consider the initial reasons for which we purchase insurance products. We have personal risks to deal with. These include the risk of dying too early, thus leaving young children without a breadwinner. This is a clear risk that is normally met by a life insurance policy.
When you take a loan to purchase a house, there is a risk that you could die before you finish paying your mortgage that is why you take credit life insurance. The same applies when you take any other loan, which is why financial institutions insist that you take credit life insurance, because they do no want to be left with a debt that no one can repay. When you travel, there is a risk of an accident, which is why most travel companies sell you travel insurance.
It is therefore very important to keep reminding yourself why you purchased your insurance product, and check if the risk has gotten worse, in which case you should increase your cover, or if the risk no longer exists.
We are now living in tied times financially speaking. Food prices are continually going up. Fuel prices are also going up. This of course brings a tight squeeze on the family budget. There are people who would recklessly just cancel an insurance policy just to get the extra cash, or to stop the monthly contributions in an attempt to increase their disposable income.
This is exactly why we would want you to keep remembering why you purchased your insurance product. If the risk for which you purchased that insurance product still exists, you are not doing yourself a favour by leaving yourself exposed.
The cancellation of an insurance product just to meet short term cash needs is to leave yourself exposed and unprotected against the risk you had taken the cover for.
Obviously the banks will never ever allow you to stop paying credit life insurance, because they are smart enough to know that they do not want to expose themselves to the risk. The question then is, why would you ever stop your own insurance contributions and leave yourself exposed to the risk against which you were initially protected?
Here are a few reasons why some people would go after their insurance policies just to meet short term cash needs:
Some people think, I can cancel this policy now and I will take it again later when I am more financially stable. Well, obviously when you cancel it you are immediately exposed and unprotected against that risk. Second, you must understand that the conditions that insurance companies used to underwrite your policy may have changed. Your age has of course changed, you are older today than you were when you took the policy. That will affect the premiums that you will pay, as well as the amount of cover you can take.
The fact is an older person pays more for insurance than a younger person. Should you wish to re-insure for the same amount of cover, it is guaranteed that you will pay more because of your age. Should you focus on the monthly amount of your premium and want to keep it low, then you will certainly reduce the amount of cover you are getting. The question that remains is whether your cover amount is sufficient for your changed conditions.
Your health today may not be what it was when you first took the cover. That will affect whether or not the insurance company can sell you cover. You may have developed "uninsurable" conditions, and therefore remain exposed for life.
An insurance policy is one of those products that when you have it, you must do your best to protect it, because the conditions under which it is sold change as your life changes. A younger and healthier person is whole lot more insurable than an older and sickly person.
You must also remember that the process of buying insurance is based on you applying for a policy. You may think that the sales agent sold it to you, but actually, you applied, and were accepted. Some get rejected outright you know! Should you quit, your next application may not be successful because of your new conditions.
You may be in a financial crunch, but before you even think of canceling or surrendering a life insurance policy, first sit down and consider whether the risks still exist or not. If the risks still exists, you may instead consider how to increase your cover in the wake of increasing prices in life. That would be the most prudent thing to do.
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