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Matching insurance to a tight budget



South Africa’s 2020 Budget speech comes at a time of plummeting national income, increased administered costs, and every likelihood of an increase individual tax burden. In these tough times, just as the finance minister is taking a good hard look at South Africa’s spending priorities, individual policy holders are encouraged to do the same with their insurance. 

Despite the pressures to dump insurance altogether, when cash is scarce the right cover matters most 

In tough times the temptation to cut spending on especially grudge purchases can become overwhelming. As the pips squeeze insurance is usually the first casualty. Maintaining essential covers in tough times, however, can save money and avoid unforeseen expense – especially when there is simply no more cash in the kitty.

Knowing what covers are essential, and how much to be allocating to these essentials, is the essence of personal risk management, “an important life skill, central to building and maintaining long-term prosperity,” says Christelle Colman, Insurance Expert at Old Mutual Insure.

Fortunately, there is a highly-developed industry out there providing many tools to help consumers manage – and price – their risk correctly.

Don’t settle for the first cover your see

South Africa’s insurance industry is very competitive so, “shop around,” advises Colman. Most insurers provide a lot of detail about covers on their sites. Most also have extensive telesales teams to advise and explain.

“A few more calls or clicks will, invariably, reveal different, cheaper or more suitable options,” adds Colman. In today’s market consumers can, literally, personalise cover to suit their exact risks – and pocket.

Brokers are a great resource

South Africa has a highly developed, and increasingly professional, insurance broking community. In addition to consumers’ own internet searches or call centre enquiries, brokers are very useful when it comes to shopping around. Let them do the heavy lifting.

“Brokers know the industry and are experienced in interrogating your specific circumstances and risks – and then matching the right cover to your budget,” advises Colman.

Avoid rejected claims

Brokers are especially useful when it comes to minimising the risk of claims being rejected.

One of the biggest drivers of claims rejection is poor research and product knowledge. Consumers regularly purchase covers that don’t apply to their circumstances or only pay out on conditions which they don’t meet.

“Brokers are very good at interrogating an individuals’ specific circumstances, matching cover to their real risks, and minimising the chances of claims rejection,” explains Colman.

Obey the rules

If cover requires the policy holder to be sober when driving, stipulates only one driver, lists a burglar alarm or the appointment of a security response company, requires fire hydrants or a lightening conductor as a precondition, “make sure you understand these conditions – and then don’t ignore the rules,” advises Colman.

Policy holders regularly only discover the detail of their policy when their claims are rejected.

“Don’t waste precious cash paying for cover that you won’t get because you either didn’t understand the conditions or ignored them,” cautions Colman.

Don’t claim for everything all the time

Insurers look at both the price and the frequency of claims.

“If you have not claimed for a number of years you will attract a lower premium,” advises Colman. Insurance is there to help consumers manage the big-ticket – usually sudden and unforeseen – crises that can cripple them financially. “Insurance is not there for every scratch, dent or loss,” she adds.

If a child constantly loses their mobile phone or you are prone to scratching or dinging your car, for example, don’t claim for these. “An increased premium will, over the long term, cost more than covering the occasional incidental damage or loss yourself,” advises Colman.

Maintenance is king

A lot of claims are rejected as consumers have not adequately maintained their property or vehicle.

“Insurance is not a maintenance plan,” says Colman.

Consumers should maintain their property at all times, “only purchasing cover for risks that threaten their financial well-being, the quality of their lifestyles, or for major loss events that could derail their personal or family growth ambitions,” advises Colman.

Restructure cover when cash is tight  

Taking on a higher excess can reduce monthly premiums in tough times.

Reducing policies to third party cover and theft can substantially reduce the cost of all-risks packages while still providing substantial cover,” advises Colman. Consumers who live in secure environments that they know are safe might also, for example, reduce or do away with theft and other crime-related covers altogether.

Alternately, if unplanned cash outlays are not possible, consumers could select a once-off, known, payment for excess-free cover each month.

Consumers who have children learning to drive, for example, “might consider excess-free vehicle cover for the eighteen months or so that the kids are learning,” says Colman. The monthly premium might be higher but considering the damage that learner drivers often cause to vehicles, a higher premium for a limited period could be cheaper in the long run. A higher premium, unlike a larger excess, “can also be budgeted for in advance,” adds Colman.

Also, if you are a conservative driver perhaps it’s time to select an insurance option regulated by a telematics service. This will allow you to, “earn a premium discount – or money-back – on the strength of your consistently responsible driving,” suggests Colman.

Update your cover at least once a year

As the content and value of your possessions change, as things break, get lost or are replaced, “be sure that the detail and the value of your household contents is correctly listed in your policy,” says Colman. Consumers who do not update their contents and its value regularly often pay unnecessary premiums, “either on possessions they do not have or at inflated valuations,” adds Colman. 

The golden rule

“Never cancel any covers where you have financing in place,” says Colman.

It is essential to maintain cover on homes and vehicles that are still being paid off. Consumers should, “never get into a position where they are stuck paying off a burned-down home or stolen vehicle, even though they have neither,” warns Colman.

Personal risk management is about constantly updating and tweaking your insurance to meet your evolving life, risk and personal income circumstances. There are many tools, systems and people out there to assist consumers manage this process – and learn.

South Africa has a, “highly-competitive insurance industry equipped to guide consumers to the cover that they need at a price they can afford,” says Colman. Consumers should call on these resources to reduce their insurance spend or up their cover in tough times rather than, “exposing themselves to risk – and potentially even more expense – when they can least afford it,” she concludes.