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Good reasons to keep the policies you have

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August 1, 2022

There are often times in our lives, as the tides of our fortunes swell and ebb, that we may be tempted to throw up our hands, surrender and utilise whatever may be at our disposal to try to solve an immediate financial issue. This may be to draw the cash on investment policies or simply cancel risk policies like Life and Disability to save on the monthly payments in the belief that they can always reinstate these policies or start to invest again when the tide has turned.

This is not always a good idea and should not be done without at least seeking some solid financial advice because as this article illustrates, there are many good reasons to keep the policies you have…

Risk policies

Apart from the obvious immediate issue of not being covered there are other disadvantages to stopping payments on such policies and these include…

Age and health – The cover and premiums of most risk policies are calculated on the applicant’s age and state of health at the time of applying for the policy. Certainly, you can’t reverse the ageing process and you will have advanced in years by the time you try to rekindle the policy – this could affect the premium you will pay so don’t be surprised if you can’t get the same cover at the same price.

With regards to health, if you have new health issues this can certainly affect the level of cover, or worse, preclude you from getting any cover at all, that you may have enjoyed previously and this is quite a common problem for people who have surrendered policies when in good health.

Waiting periods – Unfortunately, when surrendering a policy you are also surrendering the waiting periods you had to endure before receiving full cover when taking the policy in the first place. These waiting periods can include Immediate Expense Benefit, Retrenchment Protector, Funeral Cover and certain exclusions with waiting periods linked to them.

You lose Bonus benefits and special offers – Many policies have long-term loyalty bonuses payable to the policyholder. One example is the ADDLIB Bonus on Liberty policies which accrue over a 5-year period and increase as your cover and investments grow. You must also remember that If you start a new policy you will not only lose the bonus but there’s a good chance that the new insurer might not offer the same benefit!’

The same applies to special offers that might have benefitted you when you first took out the policy, which will not be available to you now and the worst case scenario is that you run the risk of being uninsurable when you’re ready to reinstate it!

Investment policies

Historically it has been shown that cashing in on investments and dropping out of the market can have devastating long-term effects. You immediately run the risk of missing out on growth and jeopardising your retirement or other goals.

Always remember that there is no bell at the bottom of the market, and the cost of being out of the market as recent history has shown can be summed up as follows (source Goldman Sachs Asset Management 2022)…

  • Missing the first 5 days of market recovery = 12% future loss,
  • Missing the first 10 days of market recovery = 17.2% future loss,
  • Missing the first 15 days of market recovery = 22.3% future loss.

These are just a few of the reasons that it is not a good idea to cancel risk or cash in investment policies without seeking expert advice – or at least investigating alternate solutions.

Hereford Group can help

Hereford Group Financial Advisors are expertly trained to find solid solutions to financial challenges. Cancelling policies, for all the aforementioned reasons, may not be the best solution for you or the only way out of a financial jam, but how will you know if you don’t seek our advice first to see what your options are?

The chances are that if you have been working with a good Financial Advisor your portfolio would have been structured in such a way that it will not be necessary to cancel policies, but if that is the case, let us look into it before you make the move. There are many good reasons to keep the policies you have – so talk to us and let us find a better way.

The war cannot be won with surrender, so together let’s find a way to keep what you have and win one battle at a time!