The risks of cancelling your insurance during a financial crisis

IN THIS tough economic climate, many policyholders are forced to make difficult financial decisions, sometimes sacrificing their short-term or non-life insurance coverage to save money, says Edite Teixeira-Mckinon, Lead Ombud of the Non-life Insurance Division of the National Financial Ombud Scheme (NFO).

- DIEKETSENG MALEKE

She says while this might seem like a logical way to ease financial pressures, it can result in severe financial setbacks if a loss occurs during a period when premiums remain unpaid.

"Everyone's worried about their finances right now, but it’s vital that you don’t cancel your insurance or default on your insurance premiums. It's hugely risky to cancel your insurance, as it is in a time of crisis when you actually need insurance the most.

"And don't just stop paying the premium; bad finance decisions can come back to haunt you later," Teixeira-Mckinon says.

The NFO operates as an independent body established to receive, investigate, and resolve complaints against financial service providers, free of charge to consumers.

According to the NFO, to safeguard policyholders and ensure continuous cover, insurers are obligated to grant a grace period within which unpaid premiums can be settled.

Policyholder Protection Rule 15 stipulates that all insurance policies must provide a minimum grace period of 15 days from the due date for the premium to be paid.

However, despite this provision, insurers may still reject claims if premiums remain unpaid beyond the grace period, it says.