Getting the best out of short-term insurance

Marius Neethling. (Photo: Luigi Bennett)

Marius Neethling. (Photo: Luigi Bennett)

According to the annual KPMG Insurance Survey, the short-term insurance industry has seen increased pressure placed on performance thanks to low domestic economic growth and rising costs. For the consumer, these trends bode well for personal financial investment and securing the future. Now is a great time to make sure that assets are insured and secured as consumers are more protected than ever and insurers are offering an increasingly diverse array of solutions.

“For many, short-term insurance is not top of mind from a personal finance perspective and is often only considered after life and funeral cover is in place,” says Dawie Buys, manager of risk at the South African Insurance Association. “The South African Insurance Association (SAIA) encourages consumers to use a more strategic and balanced approach and to have an equal split between life, funeral and short-term insurance.”

Investing in a short-term insurance policy is not something that should be undertaken lightly or without due diligence. The cost of investment is enough to warrant deeper examination of the risks and to ensure that all the right factors are taken into consideration before committing to a policy.

“It is vital that the consumer undertake a proper needs analysis together with the short-term insurance or financial services provider,” says Lizette Erasmus, head of insurance expertise at IntegriSure. “This will assist in determining which risks you are exposed to and will allow for you to establish which items must be insured, as well as ensuring you select the most appropriate cover based on your specific needs.”

Insurance offers a safety net. It provides a measure of security if faced with unexpected events. It also needs to be selected, fine-tuned and allocated in accordance with personal risk appetites, budgets and requirements.

“First, you need to know what risks you want to be insured against – theft, bad weather et al — as well as what your risk appetite is — how likely it is that you need insurance on certain items,” says Bertus Visser, chief executive of distribution at PSG Insure. “Would you be happy forgoing insurance in case you don’t need to claim or with paying the replacement cost if you do? In addition to these considerations, there needs to be an understanding of the service provider and whether or not their services are reputable.”

Buys agrees: “Shop around for the correct type of insurance policies that best suit your needs and be sure to compare extensions, deductibles, premiums and excesses. Aggregator websites such as Hippo are also useful in obtaining and comparing quotes. Always be sure to ask insurance companies what added value benefits they can offer.”

An extra feature or bonus can make all the difference to a policy and the amount of money saved versus money spent. Taking advantage of extras such as roadside assistance or home assistance potentially allows the consumer to adjust existing policies and remove those that they no longer need.

“When moving your cover from one insurer to another, familiarise yourself with your current product offering and always do a comprehensive comparison,” says Erasmus. “Consumers do not always pay the necessary attention to detail and may find themselves caught unawares over what their cover actually entails.”

Many of these check boxes are self-explanatory, but without them there is every chance that money spent on a short-term insurance policy is sitting neatly within the cliché of good thrown after bad. Unclear fine print, confusing terms and conditions and limited coverage can often result low payments in the event of an incident, or none at all.

“One of the trends we’ve picked up on this year is that insurance companies are conducting their own investigations before paying out claims,” says Buys. “It is very important for consumers to read through their policies at least once a year to ensure that all insured items are covered properly against loss or damage.”

It is worth making sure that any policies are up to date, in line with the market and that they cover any changes made over the course of the year. Many people do not stay abreast of the impact of inflation by ensuring that their buildings and house contents are insured for the relevant and current replacement costs.

“You need to review your insurance policy every year and not merely renew it,” says Marius Neethling, Santam’s personal lines underwriting manager. “Make sure that you are insured for the right amount and that your policy reflects any changes you’ve made. You may have bought an expensive new TV or done home renovations and you need to adjust the sum insured accordingly.”

Short-term insurance can also form part of a personal finance strategy, using policies as an investment and a form of financial security. Gerald Mwandiambira, certified personal finance professional, believes it provides a safety net for unexpected events that could have a potentially devastating impact on personal finances.

“If you don’t have insurance, you would need to save an amount equivalent to your valuables in the unfortunate event of damage or loss,” says Mwandiambira. “Imagine replacing a R200 000 car that has been written off in an accident. With short-term insurance cover, your asset is protected, enabling you to save thousands of rand that would have been needed to replace lost or damaged items.”

Insurance should make up a fundamental part of any financial plan and needs to be considered by anyone who has valuable items that they cannot afford to replace easily. Short-term insurance delivers a level of peace to the household budgeting mind and is extremely useful in protecting everyday items like smartphones, tablets and laptops that are often stolen or lost and can cost a lot of money to repair and replace.

“The benefit of short-term insurance is that you get risk cover without the long-term commitment of life insurance,” says Gideon Galloway, chief executive of King Price Insurance. “The pitfalls are that people don’t find insurance interesting and therefore don’t read their policies in full or take the time to understand them. Insurance can have a great impact on personal finance as in the short term it takes money out of your pocket, but the potential of mitigating risk is huge. The best comparison is between losing R1 000 a month or R500 000 if something happens to your home.”