Why you shouldn’t skimp on insurance

A recent study conducted on behalf of the Association for Savings and Investment South Africa found that South Africa’s income earners are underinsured by a total of R18,4-trillion.

According to Gerhard Joubert, head of group marketing and stakeholder relations at PPS Insurance, this is largely because cash-strapped South Africans deviated from their financial plans last year, cancelling or reducing their life insurance, short-term and disability cover.

Joubert points out that significant interest-rate cuts during the past two years will have an impact on lump-sum payouts on life insurance policies after death — these policies will earn only 50% of the interest they would have done a few years ago. So it will be more difficult for those left behind to live off the interest portion of this lump-sum payout.

“R1-million of cover when interest rates were at 15% would have given a gross monthly income of R12 500. At an interest rate of 7% this will now only provide R5 833 per month,” he warns. “It’s therefore vital that people take the time to review their financial plans, which may have been made in a high-interest-rate environment, which is no longer applicable.

“When it comes to saving for retirement, stopping or reducing contributions, even for a relatively short period, can have a massive impact on the final values at retirement, due the power of compound interest. If you’ve reduced or stopped contributing to a retirement annuity or pension fund, ensure you resume these contributions and if possible make up for the shortfall that has been created.”

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