What You Should Know About Cancelling Your Life Insurance Policy

By Etienne Fourie, BrightRock National Distribution Executive

Data from the Association for Savings and Investment South Africa (ASISA) reveals that South African life insurers paid out R39.9 billion in death claims in 2023, emphasising the vital role these policies play in securing families’ futures. However, life insurance is not a one-size-fits-all solution and misconceptions about its value, cost, and structure are rife.

Many policyholders believe they can simply pause and restart their cover or rely solely on employer-provided benefits or funeral cover. Yet with South Africa facing a life and disability cover gap, the financial risks of cancelling may be far worse. Life insurer, BrightRock, answers five top questions consumers should ask before cancelling their life policies:

1. “I am thinking of cancelling my policy. Can I just get a new policy later when I can afford it again?”

It may seem like a good idea to cancel your life cover now and restart it later when finances improve, however, this decision isn’t wise.

Life insurance premiums are largely based on two things: your age and your health at the time you take out the policy. The younger and healthier you are, the lower your premium. Once you cancel, you lose the underwriting status you had when the policy began, which means if your health changes, you may not qualify for the same cover at all, or it might cost you significantly more.

Developing health conditions such as diabetes, mental health related illnesses, gaining or losing a significant amount of weight, a mild heart attack, stroke or starting smoking will position you as a high-risk client. This will make it harder or impossible to access life insurance in the future.

If affordability is the issue, ask your provider about benefit adjustments or premium reductions. Many life insurers offer flexible options that allow you to reduce your financial commitment without fully cancelling your policy.

Most importantly, once your cover is cancelled, if you have a life-changing health event or pass away, there won’t be financial support in the form of a claim payment to assist your loved ones.

2. “Will I get my premiums back if I cancel?”

This is one of the most common misconceptions about life insurance and one that leads many consumers to cancel their policies under the wrong assumption.

If you have a pure risk life insurance policy, which covers you solely for events like death, disability, or critical illness, your premiums do not accumulate any cash value. These types of policies are structured to provide financial protection, not investment growth. Once the policy is cancelled, you forfeit any premiums paid, regardless of how long you’ve been contributing.

According to the 2023 report by ASISA, the majority of life insurance products sold in South Africa fall into the pure risk category, designed to provide cover, not to accumulate wealth. Cancelling one of these products is essentially terminating your safety net without financial compensation.

3. “Is funeral cover enough?”

Many South Africans take comfort in having funeral cover and rightly so, as it plays a vital role in helping families manage the immediate financial burden of burial and related expenses. However, it’s crucial to understand the limits of funeral cover.

Funeral policies typically pay out a fixed lump sum to cover costs like coffins, catering, transport, and ceremonies. While this helps with short-term expenses, it does not address long-term financial needs, such as settling debts like a bond or car loan, providing income for dependants, covering school and university fees, or replacing the deceased’s salary in a household budget. By comparison, a comprehensive life insurance policy can provide a much larger pay-out, often millions of rands, which is critical in sustaining a family’s financial future after the death of a breadwinner.

According to the ASISA Life and Disability Insurance Gap Study, the average South African income earner has only 45% of the life cover they need, leaving a R19.3 trillion life insurance gap. This means that in the event of death, most households would not have sufficient financial resources to maintain their standard of living, cover outstanding debts, or provide for their children’s education.

4. “My employer provides cover, surely that’s sufficient?”

It’s common belief that life cover provided by your employer is all you need, but group life insurance is often not enough to fully protect you or your family’s financial future.

While employer-provided cover is a valuable benefit, it typically comes with limitations that many people don’t fully understand until it’s too late. Group life cover is usually limited in value, often capped at 1x to 3x your annual salary. It also often lacks additional benefits such as critical illness cover. Lastly, it’s important to remember that group cover is not tailored to your personal or family’s financial needs.

If you’re earning R300 000 a year, and your employer offers life cover of 2x your salary, your family would receive R600 000 if you pass away. That sounds like a lot, but if you have a home loan, dependants, and other obligations, that payout would likely last your family less than 2 years. Now compare that with a tailored personal policy. A good financial adviser would typically recommend life cover that covers your future paycheques until retirement to account for debts, education, and long-term income replacement, which group schemes don’t offer.

5. “Are life insurance claims often rejected?”

It’s a persistent myth that insurers look for ways to avoid paying life insurance claims. In truth, the majority of claims in South Africa are paid out and the small percentage that are rejected are typically due to preventable issues like fraud or non-disclosure of important information.

For 2023, ASISA reported that only 4.1% of death claims were declined and these weren’t random denials. They were primarily due to:
• Material non-disclosure (failing to declare pre-existing health conditions, smoking habits, or high-risk occupations during the application process);
• Fraud (providing false information or staging events to trigger claims);
• Suicide within the waiting period. Most policies have a 24-month exclusion period for suicide, and claims within that timeframe are legally excluded.

Insurers highlight that transparency at application stage is the single most important factor in ensuring claims are honoured later. Where full disclosure is made and premiums are kept up to date, the likelihood of your beneficiaries receiving the full payout is extremely high.