The petrol price is now over R8, inflation is higher than anyone expected and looks ready to test 9%, and our mortgage repayments have gone through the roof. When trying to squeeze that little extra from your monthly budget, review your current insurance payments and look at ways to self-insure.
According to Gari Dombo, MD of Alexander Forbes Insurance, self-insurance involves deciding what insurance you could do without by covering yourself in the event of loss occurring. This is, in fact, the basic concept of risk management — taking on some of the risk yourself to reduce monthly premiums.
If there is an item that you would not bother replacing, don’t insure it. For these smaller items, rather have an emergency cash saving to cover them if they are stolen or lost. If the items are never stolen, then you have the cash in your bank rather than paying an insurer money you will never see again.
“Things such as cellphones, rings and watches, along with most of the stuff you use on a daily basis, are all replaceable at not-so-crippling costs,” says Dombo.
Rates on all-risk policies are high because you are covering valuables that you use outside of the home. All-risk policies also cover you anywhere in the world. Yet how often are you actually overseas?
Dombo advises giving up your all-risk policy, provided that you are able to self-insure the smaller day-to-day items that you may lose. Or you may even decide that you do not need to insure them at all. In the event that you do travel abroad, you could always take out temporary travel insurance.
Self-insurance also applies to long-term risk. Having income protection is an excellent idea especially if you are self-employed. But cover that pays out after a week of not being able to work is significantly more expensive than cover that only kicks in after a month. Rather have up to three months’ salary saved in a money-market account and take the less expensive cover.
Finally, if clients pay their premiums annually, they will incur a substantial discount. Similarly a saving can be achieved by consolidating all your portfolios and paying by one debit order. Having five insurers for five classes of insurance is expensive. “Different classes of insurance tend to subsidise one another. Having all your insurances with one insurer will also reduce your overall premium cost.”