Why you need financial expertise during an economic downturn

With the economy struggling and the cost of living constantly increasing, consumers are facing a tough time. Following gross domestic product growth of -2.6%, the South African economy dipped into a technical recession, adding even more pressure on already tight budgets. A technical recession is two consecutive quarters of negative growth. The cost of fuel, VAT and even sugar has resulted in households cutting back on spending and restructuring their monthly budgets.

As a result of the financial challenges facing consumers, Johan Minnie, Liberty group sales director, is concerned that the financial pressure facing households might lead to them cancelling their insurance policies. According to Minnie, between 8% and 10% of life policies lapse each year, and 90% of these cancellations are due to affordability.

“When consumers face serious financial pressure, they tend to prioritise debt repayments, school fees and other expenses – all of which are important, over life assurance premiums. Unfortunately, you don’t know when you'll need this cover; that's why cancelling it is a serious risk,” says Minnie.

Now is the time to reach out to your financial adviser, who has a crucial role to play in helping you manage the investments, cash flow and risk-cover challenges in your household, he says.

When the economy is sluggish, consumers need to ensure that they have the right insurance cover in place to get through the slump. This is where financial advisers must use their expertise and knowledge to put the right measures in place to help you maintain your long-term financial goals.

Minnie says: “Financial advisers are there to help you take control of the things that matter most in your life and to shape solutions that are aligned with your needs and circumstances. "

When times are tough, insurance cover can be seen as a grudge purchase. Risk protection such as life, disability and critical illness cover is important, but it might be wise to include retrenchment and policy protection cover to your portfolio too. The reason for this is that businesses come under pressure and the possibility of retrenchments increase. If this had to happen in a household where budgets were already tight, the fallout could be severe.

"When the economy or demands from your family throw you a financial curveball, remain focused and don't panic. Panic can cause you to make serious financial errors," says Minnie.

Remember, it is your money and you need to use it for your personal goals. Always play open cards with your adviser and reveal your short-, medium- and long-term goals so that you can work together to implement a strategy that will work for you.

This article was paid for by Liberty Group SA.