Cancelling insurance during difficult financial times may reduce your monthly expenses today but if disaster strikes tomorrow, it could become one of the costliest financial decisions you’ll ever make.
“Insurance only feels unnecessary until the day you need it,” says Christelle Colman, CEO and Founder of Ami Underwriting Managers. “Risk does not pause because your household budget is under pressure.”
When debit orders start bouncing and groceries cost more every month, households begin making difficult choices. The gym membership goes, eating out becomes a luxury, and streaming services are cancelled.
Then attention turns to one of the biggest monthly expenses that doesn’t seem to offer any immediate return: insurance…
After all, nothing has happened for years, so why keep paying for something you never use?
“The better question isn’t whether something will happen,” says Colman. “It’s whether you could recover financially if it did.”
She says the temptation to cancel cover is understandable because it feels like an easy way to free up a couple of thousand rand every month.
“Rising living costs mean families are looking for savings wherever they can find them. Yet eliminating insurance doesn’t remove the risk – it simply transfers it back onto the household. A stolen vehicle, a devastating fire, burst water pipes, storm damage or a costly third-party liability claim can wipe out years of savings in an instant.”
The monthly saving can disappear in a single afternoon. What seemed like a sensible R1500 or R2 000 saving can quickly become a loss of hundreds of thousands of rand.
“It’s a mistake insurers and brokers see repeatedly,” says Colman. “Consumers believe they are saving money by cancelling their policies when in reality they are taking back a financial risk they may not be able to carry.”
Insurance is there for the losses you cannot absorb
Colman explains that insurance was never designed to pay for life’s small inconveniences. “Its purpose is to protect people from the kinds of losses that could take years to recover from.”
That distinction becomes especially important when finances are under pressure.
Saving R1 500-plus a month may provide immediate relief, but if a financed vehicle is written off after cover has lapsed, the owner may still owe the bank while no longer having a car.
Colman says one of the biggest surprises for motorists is third-party liability.
“A minor parking accident involving a luxury vehicle can result in repair costs running into tens or even hundreds of thousands of rand.
“Likewise, a homeowner who has paid off a bond may decide buildings insurance is no longer necessary. Then a major fire, violent storm or burst water pipe causes hundreds of thousands of rands’ worth of damage that must now be paid for from savings,” says Colman.
Even cancelling household contents insurance can become an expensive lesson. Clothing, furniture, appliances and electronics may not seem particularly valuable when viewed individually, but replacing everything after a burglary or fire can be financially overwhelming.
There are alternatives to cancelling
The good news, says Colman, is that cancelling insurance is rarely the only option.
“Rather redesign! In difficult times, a broker can be your friend. Before cancelling cover, ask your broker to shop around, compare options properly and help you make an informed decision.”
South Africa’s short-term insurance industry is highly competitive and consumers with a clean claims record, good security and responsible risk management may qualify for better premiums elsewhere.
Instead of cancelling outright, consider practical ways to reduce monthly costs, says Colman.
Increasing your excess may lower your premium if you can afford the higher excess should you need to claim. Optional policy extensions that are no longer essential can sometimes be removed without affecting your core protection. Owners of older, fully paid-off vehicles may find that third-party, fire and theft cover offers an affordable compromise while still protecting them against some of the biggest financial risks.
“The goal isn’t necessarily to keep the perfect policy,” says Colman. “The goal is to keep protection around the losses you simply cannot afford to carry yourself.”
Before cancelling an insurance policy, she suggests asking yourself four simple questions:
- Could I afford to replace this tomorrow?
- Could I afford to live without it?
- Could I afford to pay if I damaged someone else’s property?
- Is this essential for my work or my family’s daily life?
If the answer to any of those questions is “no”, it’s worth speaking to a broker before making a final decision.
Look beyond the cheapest premium
Another important consideration, says Colman, is that the cheapest premium is not always the best value.
“When money is tight, the cheapest quote can be tempting. But comparing premiums alone can be misleading. Not all policies are created equal. Going direct is certainly not always cheaper, and cheaper is not always safer.”
Lower premiums may come with higher excesses, stricter security requirements, reduced benefits or exclusions that only become apparent when it’s time to claim.
A broker can help compare not only price, but also the quality of the cover, the claims service and whether the policy genuinely meets your needs.
Your claims record has value
Colman reiterates that a good claims history forms part of your financial reputation with insurers. “Many consumers don’t realise that their claims history forms part of their financial reputation with insurers. A clean claims record gives brokers more room to negotiate competitive premiums and helps insurers view the client as a lower risk.”
That doesn’t mean avoiding legitimate claims. Insurance exists for genuine losses. However, claiming for every small incident that you could reasonably absorb yourself may affect future premiums and insurability.
Never compromise your integrity
Financial pressure can sometimes tempt people to exaggerate losses or submit fraudulent claims but Colman warns that this can have serious consequences.
“Fraudulent claims can result in the claim being rejected, the policy being cancelled and difficulty obtaining insurance in future. Short-term financial pressure should never become a long-term insurability problem.”
The hidden cost of going without cover
The financial consequences of cancelling insurance are often obvious. Less obvious is the emotional toll that follows an uninsured loss.
People suddenly find themselves without transport, unable to repair their homes, facing unexpected debt or struggling to replace everyday belongings. The stress, disruption and regret often outweigh the money they initially saved on premiums.
Colman advises that the smartest approach is not to panic. “It’s to protect your biggest risks while finding ways to make your cover more affordable until your finances recover.”
