Mail & Guardian
Mail & Guardian

Seniors, beware self-insurance

2 min read

The low interest-rate environment has put the squeeze on a lot of senior citizens with fixed incomes. They’re often tempted to cut or cancel their short-term insurance, but non- or self-insurance may not be a good idea. Seniors may face huge claims to cover third-party or personal liability exposure and could be financially ruined, warns Debbie Barrett of FNB Insurance Brokers.

A younger person earning a salary has earning power, so it’s easier to replace losses and repair damage. A pensioner often lacks the resources to make good a major loss. Yes, these contingencies may not happen — but underwriters typically pay out 65c or 70c per rand of premiums to meet claims, so it’s up to you to weigh up the odds and calculate what a loss would cost you.

Debbie offers some advice for those considering self-insurance.

  • Self-insurance is practised by some individuals, but is most appropriate for high-net-worth individuals who create a cash reserve and have the discipline to keep this contingency fund intact. Self-insurance for the average consumer is apt to degenerate over time into non-insurance, leaving the individual exposed to dire financial risk.

  • In cases where individuals believe they can make a degree of self-insurance work, they should adopt a prudent and selective approach. Being uncovered for third-party and personal liability risks can be disastrous. Self-insurance in some risk categories can expose the family to multimillion-rand claims. Consumers should seek the advice of short-term insurance professionals on these issues.

  • The experience and prudent lifestyles of some older people can result in lower risk in certain instances. This is reflected in some pricing structures. For example, some products offer special rates for older people or those living in a more secure environment. Pensioners should contact their broker to ensure they get maximum advantage from cost-efficient provisions such as these.

  • Regular reviews should be carried out with a broker to ensure an individual’s short-term portfolio remains appropriate to lifestyle needs. After downsizing, certain possessions may be removed from all-risk cover, for instance. As a motor vehicle ages, its market-related replacement value falls. By adjusting these values on the policy, it’s often possible to reduce the premium. Explore options such as these in consultation with a reputable broker.
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