CRA Insurance Explored – South Africa
By Ashika Devnarain
LIFESTYLE – If your salary has been cut, or in some cases lost entirely, here some tips that you should keep in mind for short-term insurances, medical aid, retirement policies and investments.
Short-term insurance is cover for your vehicles and household contents, so if you were to suffer a loss to your vehicle due to theft, or an accident or to your household contents due to a burglary, fire, or flooding, you will be insured for the loss of these items.
Lots of clients are considering cancelling their vehicle insurance now, as they believe they are now in lockdown and are thus not using their vehicles, so the risk of an accident is almost nil.
However, this is not a good idea. Vehicle insurance not only covers you for accidental damage but also events that are out of your control.
Things like theft, vandalism, glass and windshield damage, fire, weather/acts of nature.
Instead of cancelling, one of your options would be to downscale your cover from Comprehensive to Limited Cover, which will reduce your premium, but still ensure you are covered.
You can then take it back up to comprehensive cover, as soon as you are able to. This ensures you still have some level of cover rather than no cover.
Medical aid is important, as it ensures you get treatment quickly, at a private facility. It is important right now, due to the Covid-19 outbreak and the possibility that you may need urgent hospitalisation if you contract the virus.
Your medical aid covers the costs of being admitted to hospital as well as the day-to-day cost of GPs dentists, X-rays, blood tests and medication.
Medical aids and hospital plans are expensive and most people will not be able to afford it with our current situation.
Depending on the company you are with, you can request a downgrade to a cheaper plan.
Other companies are offering the option to “freeze” premiums for three months.
However, in this time you have no cover. After three months, you can start paying your monthly premiums again and your cover will be reinstated. This is not advisable as we need our cover the most right now.
Other companies are giving you the option of paying the premiums from the available savings in your medical aid, for a period of three months.
The best way to determine your options here would be to contact your broker or the relevant company that you are covered with.
Retirement policies (RAs) are policies that are designed to help you save for retirement. These policies only mature after the age of 55 and it are designed to help you live comfortably when you do retire.
It also provides you with tax relief, in the form of a tax rebate.
With RAs, you can request a premium holiday of up to six months. What this means is that you don’t pay your premiums for the period you qualify for, so if it is three months you will not be debited for those three months, after three months your debit order will resume.
You do not need to repay these premiums that you have skipped. Different insurers have different rules, so please liaise with the relevant company in order to check if you qualify for this benefit or not.
If you cannot afford to keep the policy at all, you can request to have it made “paid-up”.
The value of the policy will then remain as it is, until you reach age 55, at which stage you can withdraw the funds.
This should actually be your absolute last option, as a retirement annuity is of vital importance to you.
If you can afford to keep your investments, you must. Investments help you to achieve the dreams you have – the new car, that overseas holiday, the deposit on a new house, your child’s education.
I doubt anyone is considering new investments at this stage and we are all holding onto the money we have, uncertain of what the future has in store for us.
However, for any of us wanting to put away some money, the tax-free savings plan is the best option.
A tax-free savings account is an effective way to save for your long-term goals, without having to pay tax on interest, dividends, or capital gains.
By paying no tax, your money grows faster than it would in a regular savings account, getting you to your goal sooner.
The premiums start from R350 to R3000 per month, to a maximum of R36000 per year.
Insurers are offering premium relief, in the form of premium holidays for investments as well, and it would work exactly as mentioned above (for RAs).
Devnarain is a financial planner with The Insurance Network
Credit to IOL.