Short-term insurance 101

It takes hard work, time and effort to amass valuable possessions, so it makes financial sense to protect them against loss or damage by insuring them. “The purpose of insurance is to place you in the financial position you were in at the time directly prior to the loss. You cannot predict the future, and that is why you need insurance,” says Ricardo Coetzee, head of Auto & General Insurance.

By paying a monthly premium to an insurance company, you can be reimbursed for losses of insured items. The majority of clients that contribute to the premium pool don’t lodge claims during the year, which enables the insurance company to reimburse those clients that do incur losses, explains Marius Neethling, personal lines underwriting manager at Santam.

Short-term insurance, according to Neethling, will protect your possessions against losses that you may suffer due to unforeseen events such as burglary/ theft, storm, wind, water, snow, hail, floods, fires, subsidence, landslip or accident and earthquakes, among others.

Household and contents insurance

As a rule of thumb, one should imagine taking the roof off of your house and turning it upside down – everything that falls out will be covered under your household and contents insurance policy; that which doesn’t, is covered under buildings, explains Christelle Colman, insurance expert at Old Mutual Insure.

Household contents insurance covers you against theft, loss, damage and other perils such as a fire or flood, explains Auto & General’s Coetzee. Buildings insurance covers the loss or damage to the actual building structure as a result of fire or explosion; storm, flood, lightning strike and resultant damage; and ground movement including subsidence and landslip. In terms of how much cover one should contemplate for the household, a starting point is according to Coetzee. “The replacement value of goods is what it would cost you, at the time of a claim, to replace all your belongings with similar brand-new ones,” he says.

In instances where an insured item such as a DVD player gets damaged or stolen, but the item is no longer manufactured or sold, Neethling says compensation will be based on the latest available sales price of a similar item. For example, a flat screen TV as a replacement for a conventional TV. Colman adds that it is also likely that the insurer will settle such a claim in cash.

While a home contents policy specifies a list of what you are covered for, an all-risk or portable possessions policy covers you for all risks except for those risks that are specifically excluded, says Coetzee. “In other words, it offers wider cover.” Portable possessions or all-risk cover allows policyholders to claim for items they usually carry around with them, which have been stolen, lost or damaged. Items include, for example, jewellery, sunglasses, cellphones, laptops, clothing and iPads.

Often, service providers such as Vodacom and MTN offer insurance on devices procured from them. In such instances, the best option, according to Coetzee, would be to compare the different insurance products and prices with each other when deciding whether to take out insurance with the service provider or specifying them in a portable possessions cover.

It may be to your benefit to add your cellphone to your current cover as price discounts may be applicable when adding additional cover to standing policies, says Coetzee, while Neethling notes that you would have already built up a relationship and track record with the insurer. “Their [insurer] core business is insuring property. The service providers’ core business is the sales of the cellphones,” he says.

Vehicle insurance

Automotive insurance is not compulsory in SA unless you’ve taken out a finance policy to cover the cost of the car.

When taking out car insurance, policyholders will have the option of deciding the excess amount they would like to set. An excess is the amount payable by a client in the event of a claim. Policyholders can choose to opt for a higher excess, which, in most cases, should lower your insurance premium, says Coetzee.

He cautions that although this might seem to be a viable option, the reality is that at the time of a claim, the excess amount needs to be paid. “This is the precise reason that many people do not take up this option, because they fear they may not have the necessary cash available when they need to make a claim.”If you are high risk – perhaps vulnerable to car theft or house break-ins due to the area you live in – a low premium can be a bad financial decision, urges Coetzee. “It is advisable to rather pay a bit more on your premium each month so that you don’t get hit with a hefty excess to pay after repairing or replacing your car or belongings.”

Factors to consider when taking out insurance and add-ons

It’s important to update your household inventory list on a regular basis to ensure that any new items are included and to remove items that you no longer have, advises Coetzee. “It doesn’t make sense to be paying to insure your old washing machine when you have just replaced it with a new one with a higher value.”Add-ons such as cover for tyres and the sound system or including a car rental service in the event that you are without your insured vehicle (for example if it is undergoing repairs) are “worth it” but only if they are affordable, says Neethling.

It’s important for consumers to know the ins and outs of their short-term insurance policies and understand the implications, says Coetzee.“All insurance companies have their own rules and conditions with which policyholders must comply in order to be covered and have their claims paid.”

This article originally appeared in the 25 June edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.

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