By Brina Biggs
According to ASISA, in 2022, the market saw a million more life insurance policies lapse compared to the previous year, with 8.4 million policies lapsing, and nearly 700 thousand savings plans being cashed out early.
This comes as no shock given the fact that consumer income and buying power decreased by 26.6% between February 2018 and February 2023.
Financial strains and increasing pressures have most certainly forced the hand of many South Africans to focus their available funds on simply getting by while removing all other forms of ‘non-essential’ spend – including the payment of risk insurance premiums, despite these actually being essential financial commitments.
In fact, in our very own research, the 1Life Insurance stats reveal that in the same period, the non-payment on premiums increased by 3% each month and up to 17% in December 2022 compared to December 2021.
Cashing in investment policies and allowing life policies to lapse, may seem like a viable option for many consumers right now however, this is leaving consumers even more financially vulnerable – especially for those left behind should something happen to the main policy holder.
The consequence of this behaviour is placing an even greater threat on South Africans’ ability to build generational wealth and moreso, is placing extreme pressure on the future financial freedom of the families supported by policy holders.
We are currently seeing many more late-stage diagnoses meaning that before one knows it, the inevitable in near.
A lapsed policy leaves a family without protection and a business without income as once a policy has lapsed, the beneficiaries of the policy will not receive the life insurance payout and can be detrimental to many livelihoods.
The reality is that consumer can certainly take out new policies but very often in these cases, the premiums may be higher and there may be exclusions and waiting periods before they can then claim and if we consider that 2022 marked the second highest claims on record, then there is no doubt that consumers are not identifying life policies as a critical financial survival and wealth creation tool.
The good news is that, from our recent Generational Wealth survey, we have identified that 88% of consumers have cut down on unnecessary spending, and 49% are saving for emergencies and so not all is lost – in fact these stats are a drastic improvement compared to the same time last year.
And so, consumers should ensure that – as they save, they consider their life policy as a ‘savings’ mechanism, enabling them to protect their families and businesses and take some of the money they are cutting down in their expenses and ensure they use this towards keeping up with expenses.
However, if you have a lapsed policy – speak to your insurer as the good news is that many lapsed policies can be reinstated, which means they will be valid and in force, and valid claims will be paid.
Similarly, if consumers feel like they are struggling to keep up with their premium payments, instead of letting them lapse, they should speak to the insurer who many times will do things like reducing cover for three months to help ease the burden or look at permanent reduction in premiums.
For those struggling to manage their money and don’t yet have a lapsed policy but need to find room for their monthly premiums, there is help out there.
Consumers should simply speak to their insurer or financial advisor to help them find a solution and tailor their products to fit individual budgets. While this may mean you can’t keep all your cover, having some cover is better than having none!
In fact, when choosing a policy in the first place, it is important that your insurer does a full financial needs analysis to help you identify the most appropriate spend for your budget and then tailor your financial products to meet this as best as possible.
In doing so, we are mitigating the financial pressures of what sadly today is still very much a ‘grudge purchase’ but a purchase that is far more important than many other supposed essentials on the traditional household list.
Investing in your family’s financial future starts with ensuring your finances are protected should something happen to you. It is this commitment to financial freedom and the creation of generational wealth that is very much needed in South Africa – to protect our future citizens.
Policy lapses go against this objective and so, we encourage consumers to speak up and get the help and advice they need, before they get to this point.
Brina Biggs is a manager at 1Life.
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