Is there a right time to cancel your life assurance?

We're often told, particularly through advertising messaging, that we need to protect ourselves and our loved ones through life assurance.

But is there ever a time to cancel this particular kind of policy?

As Galileo Capital's Warren Ingram explains, with life insurance you are able to choose for how long the cover is in place, but with life assurance the cover is there for the rest of your life.

Life assurance exists as a way of protecting your loved ones from financial harm if you die, particularly if you are the breadwinner in a family.

"Insurance is what we buy to protect our goods, so you'd for example buy car insurance or home insurance... but then the other things we need to insure include our ability to earn an income or our life, and that's called life assurance or disability assurance."

Isn't it counter-intuitive then to consider cancelling your life assurance?

We should be advised as well that there is a time when we do not need this type of cover anymore, Ingram says.

THE RIGHT TIME TO CANCEL YOUR LIFE ASSURANCE:

1. When you have excess capital

If you're fortunate enough to have built up enough assets to fund yourself and your loved ones if you die, then there might not be any requirement for life cover.

It's probably worth doing a calculation to ensure that your loved ones will still be in a good position after your death, especially if you need to consider estate duty, capital gains tax etcetera. (You can get a tax fundi to do an estate duty calculation to be sure.)

2. When you retire

There is no further need to buy financial protection for yourself or your loved ones if you're retiring with sufficient capital and want to limit unnecessary expenses.

As you near retirement or soon after retirement, it's a good idea to review all your expenses to determine what is no longer needed. Life and disability insurance might be costly at this stage of life and probably not required.

(Just be sure to consider the liquidity in your estate if you have lotsof fixed property or other assets that should not be sold.)

3. You can also reduce your life assurance gradually or in steps

As you get older, your need for cover might reduce and the cost of insurance will definitely be rising rapidly.

You might still need some insurance, but perhaps the need reduces as your financial position improves. That means you can gradually reduce your cover as you get older.

Alternatively, if you reach certain financial milestones (for instance when your home loan is paid off), you could reduce your cover.

To listen to Warren Ingram's detailed advice on 702's The Money Show, click on the audio link below: