As Namibians, we really have a lot to be grateful for. With the measures put in place by the government it appears as though we have managed to flatten the curve of new infections with the country’s positive cases remaining at 16 for the past 5 weeks. I really pray and hope that this stays like this forever!
During the lockdown, I spent sometime looking into at our financial status and one thing that caught my attention was the concept of the emergency savings. I published an article of on this a while ago but simply put, it is having money saved for the a rainy day.
When I shuffled around our savings, looked at the our debt level, I came to a conclusion that should something really go wrong for us, the savings will at least be able to able to cover the mortgage payments for the next 2 years and some odd month. This is of course assuming that all of it goes toward paying for that and we somehow still manage to get some money to pay for other costs of living such as food, electricity etc.
With that said, it brings us to the final tip of the week:
If you cannot save enough in emergency savings, please consider taking out credit insurance.
I stumbled upon credit insurance most recently on a friend status and I am not sure a lot of people are aware of it. Credit insurance is a policy you take out with the bank , and you pay for it on a monthly basis on the premise that should you be unable to pay for your debt for a set period of time, the bank will cover you without re-possessing your asset.
Let us take an example to illustrated this:
A friend recently bought a car and took out a cover for N$36 000 with the bank. This was enough to cover her for a period of two years should she get retrenched or loose her income ( something beyond her control). What the bank then did, they added the value of the cover to the loan amount they advance to her and calculated the monthly premium on the capital amount inclusive of the credit insurance cover.
Had she not taken out the insurance, her premium would have N$223 cheaper on a monthly basis, meaning that her credit insurance is costing N$233. Over the life time of the loan, she would pay the bank N$18 000 ( including interest charged ) for a cover of N$36 000. If she gets retrenched, she will score to the value of the month that she is unable to pay for her car. However, if she does not get in that situation, she would loose out on her contribution. That is a the nature of insurance , you take a risk and if that event does not happen, you are not refunded.
I was then weighing the options whether its worth having credit insurance or just rather have enough in emergency savings. This really depends on your personal circumstances especially your financial standing. If you have lumpsum somewhere that you can access in case of an unforeseen event, then maybe having emergency savings is for you. If you do not want to have that stress on your mind, then credit insurance is the way to go.
Remember there is still a difference between credit insurance, life cover, normal car insurance etc. If you want me to cover in detail the different types of insurance or have a specific question on the above, please leave a comment below.
Remember to protect what will leave you bankrupt!