South Africans who have been claim-free for a few years and haven’t reviewed their policies are likely paying too much for insurance.
This is according to short-term insurance actuary John Wessels, who noted that even though short-term insurance is essential to keep you safe from financial shocks, that does not mean you should be overpaying for it.
Short-term insurance is often overlooked, but it offers crucial protection against the loss or damage of important possessions such as your home and its contents, your car, or electronic devices such as your laptop.
However, for those who have insured their goods, it can be easy to pay more than you need to.
According to Wessels, if you have been claim-free for a few years and have not reviewed your short-term insurance policy recently, you are likely paying too much.
This is because your risk profile has probably improved from when you first took up the policy.
This is especially true for younger drivers who have a few more years of driving experience and have not had any claims.
If you have been with the same insurer for many years, you may benefit from obtaining quotes from other companies to provide you with peace of mind that your insurance is still competitively priced.
“Just make sure you are honest about your claims history when shopping around,” Wessels cautioned.
Unfortunately, instead of viewing short-term insurance as an essential financial planning tool that should be reviewed and updated as soon as circumstances change, most consumers consider it a grudge purchase and only look at their policy documents when they need to claim.
“Your short-term insurance contract should be saved on your desktop, ready for review as soon as something changes, but at least once a year,” Wessels said.
“If you have a good broker, a representative will likely insist on going through the policy schedule with you once a year. But if you do not have a broker, you should diarise your own review annually.”
Reviewing your insurance
Wessels provided a checklist to help guide South Africans through their policy review.
In the first place, he advised that people examine whether their insurance needs have changed over the past year.
As much as you don’t want to pay too much for your short-term insurance, you also do not want to find yourself underinsured.
If your home and its contents are not insured for today’s replacement value in case of a total loss, you will only receive a percentage of your claim should there be a loss, even if it is just a partial loss, Wessels explained.
He advised that everyone should insure their home for what it would cost to rebuild it entirely and to complete the insurer’s inventory form to ensure that the household contents are accurately valued.
You could also be underinsured if you forgot to increase the insured amount following the purchase of, for example, an expensive household appliance or electronic device such as a laptop.
On the other side of the spectrum, though, there is also the risk that South Africans could be overinsured.
According to Wessels, if your possessions are insured for more than they are worth, you will pay a higher premium than necessary, and risk having a claim declined if you cannot prove the value of an item at the claims stage.
For example, insurance companies commonly ask for a valuation certificate for jewellery, and for electronic appliances, you may need to provide proof of the value of the item being replaced.
When you move into a new home, you must inform your insurer, Wessels said.
The premium could be higher or lower depending on the overall security rating of the suburb you move to.
Your insurer will also want to know whether your property is protected by armed response, whether you have a monitored electric fence, security cameras and a burglar alarm and whether your car is parked securely at night.
Wessels also reminded parents that when their young adults get their driving licences, the insurance company must be notified of the new regular driver.
He cautioned that many insurers will apply a significant excess in addition to your normal excess should your young driver have an accident when driving your vehicle.
Wessels further advised that people should look at whether the benefits of their policy are still appropriate.
Certain policies may be adding to your financial burden when they could easily be avoided completely.
He pointed out that if you have paid off your car, for example, you should inform your insurer. Removing the credit shortfall cover will reduce your premium.
Surge cover is something else that is expensive and could be mitigated by installing power surge plugs.
Wessels also cautioned that new appliance warranties may be void if you cannot prove that you had a power surge protector installed.
Ways to reduce your premium
According to Wessels, there are also several other ways that people can reduce their premiums.
First, he urged policyholders to consider a higher excess since this could significantly reduce their premiums.
Instead of accepting an excess of R2,500, for example, you could opt for an excess of R10,000 and keep this money in a separate account for the day you need it.
Wessels added that the key here is being disciplined enough to keep the excess for insurance purposes only.
Check with your insurer whether specific security upgrades to your home could also reduce your premium, Wessels added.
An investment in better security is not only of benefit to you and your family but since it also reduces the risk of a claim, your insurer may adjust your premium, saving you some money.
Wessels also urged consumers to maintain their geysers since insurers generally only pay once the geyser has burst.
If you are lucky, the geyser bursts and does not cause additional water damage. However, if the geyser is not correctly installed, there could be significant damage and discomfort.
In addition, once the claim has been paid, your premium may increase. Wessels recommended ensuring that the geyser is correctly installed and maintained on a regular basis by, for example, replacing the anode rod from time to time.
He added that people should also think twice before making a claim. Because insurance is often considered a grudge purchase, consumers may be tempted to claim whenever possible or even fabricate events to benefit without having suffered a loss.
However, Wessels cautioned against this. Not only could this increase your premium, but insurance fraud is also considered a criminal offence.
Dishonesty will likely result in the insurer cancelling your policy, and most companies will not insure consumers whose coverage has been cancelled by other insurers.
“Set aside an hour and read your policy schedule from beginning to end, making notes as you go along of things that may have changed or items you would like to add,” Wessels said, adding that you may also discover helpful information.
“Policy schedules often list essential, and sometimes interesting, information in the back of the document.”
“Did you know, for example, that many insurers will pay you a cash reward should you hit a hole-in-one while playing golf as an amateur?”
Wessels noted that the section at the back of the policy document also explains the liability cover you enjoy should guests or household employees suffer a loss or injury while on your premises.
However, if you have a pet, you may need additional liability coverage in case it injures someone since most household policies exclude this risk.