Master of Money Management

What not to cancel in the event of a financial crisis

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When our budgets get put under pressure our natural reaction is to start cutting costs. While this is a sensible thing to do there are some things that should be left well alone. What we should really be cutting is our beer and cocktail bills but some sacrifices can be tough to make. Some of us may decide that those insurance and investment products are expendable, but this could be a very bad move.

Car Insurance.

Many people view car insurance with disdain, it’s like paying protection money for your car. It is estimated that only 45% of cars on the road carry insurance, and when you consider the high accident rate in this country it seems like madness not to have it. When people go into financial murky waters, they often eliminate this expense. After all it’s not like an investment policy where you get smacked by penalties. It takes one phone call and R300-R1500 is wiped of your monthly bills; score!

While it may seem like a workable short- term solution this could be one of the biggest mistakes of your life. Let’s assume that your car is worth R70, 000 and it has a finance agreement in place. If you have an accident and it is written off you will still owe the bank the entire balance of the contract. Not only that you will now need to find another car. The chances of you getting another finance agreement may now be significantly reduced because of affordability issues. You could also be sued by the other driver’s insurance company. So your efforts to save R300 per month could easily cost you over R100, 000 if you have an accident and if you hit a McLaren F1, well bye-bye life, hello indentured slavery.

There is no harm however in shopping around to see if you can get a better price.

  • If you have a rental car option take it out and save on the premium.
  • Increase your excess and you will get a reduction in premium.
  • Make sure your insurer knows about all the safety devices on your car and that it is parked in a secure place. If you have moved from a regular home to a security complex this will affect the premium.

Life Cover.

Life cover is also often a casualty of a stressed budget. If you are prepared to roll a dice on this you will save on premiums but leaving your family vulnerable for the cost of a few hundred rands each month, is just not worth it. A life policy can be inexpensive especially if it is pure life with no investment portion. Cover of R500, 000 can cost as little as R400 per month. There are other places to skimp on – life insurance is not one of them.

Household Insurance.

What’s the chances of your home burning to the ground or a robber cleaning you out? Well in terms of your house going up in flames it’s quite a rare occurrence, but it is possible. As for your home being cleaned out, well with crime as it is, it’s not beyond the realms of possibility. Maybe you feel you can take the knock if someone steals your lazy boy, but if your house burns down it can set you back for many years.

Household insurance is relatively cheap and if you lump your car and home into one policy you can save on premiums. If you want to bring costs down, don’t insure high risk items like bicycles and cell phones. Most people can afford to replace these items themselves.

Contractual Savings plans.

Cancelling a savings policy seems like a no-brainer when you can’t pay your bills but doing this may cost you more than you bargained for. If for example you have a five year endowment, you have signed a contract promising to save a set amount for a set period of time. If you cancel an endowment then you will become liable for all the unpaid administration fees. The chances of you getting any cash back in the first two years are slim. So it may relieve you of the monthly payment but you will be throwing money away.

 Medical Cover

Medical care costs a fortune, you need it, don’t cancel it for anything, not for your favourite rock star tickets, not for love and not for a bacon dagwood after a riotous weekend.

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