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Insurance should not be a grudge purchase because it is a necessity.
Attie Blaauw, head of Personal Lines Underwriting, says, “It is essential to have adequate insurance cover that can help alleviate the financial burden of getting back on your feet. It is important for consumers to ensure their risk protection remains sound and to do an annual check-up to see if they are correctly and adequately insured, both in the event of a disaster and during other times of misfortune.”
Your short-term insurance contract can often seem overwhelming in its complexity, and particularly frustrating when your claims are not paid out in full. How can you ensure you do not miss any detail when taking out short-term cover?
Blaauw explains the five common pitfalls consumers often overlook when it comes to the terms and conditions of a short-term insurance policy.
Underinsurance: In short, you are underinsured when you insure your assets for less than what is required, and what is required is to be able to be in the same financial position as prior to your misfortune. The insured value of your contents and buildings of your private residential structures must be equal to the current replacement value, not the original purchase price or current market value. This is not just the case for when you have large losses. It is important to note that, if you are underinsured, you will also not be fully paid for smaller losses. If you insure for only 50% of the replacement value, then you will be paid only 50% of the loss in accordance with a principle called “averaging”.
However, calculating the replacement value of your building or contents is easier said than done. Neither you nor your broker is an expert in this field. But it is only you that know the details of what you own. Insurers therefore often make different tools and services available to assist clients in the evaluation process. These include inventories, the services of professional evaluators, and online calculators. You will often find that, should you make use of these tools and insure for the suggested values, your insurer will scrap the average condition and you will then have the assurance that any claim, big or small, will be paid in full. Especially on home contents, replacement costs often are much higher than you may think. The small additional premium you pay for what seems to be inflated replacement values is well worth the ability to replace in full the assets you had when you suffer a loss.
Excess: An excess amount is the first amount payable for which the client is responsible. It is the agreed amount of money you pay as a contribution towards repairs or replacements. While these excesses are highly differentiated in the insurance market, an excess amount is applicable to most short-term policies, and it is explicitly stated in all policy documents. Clients are advised to read this part of the policy carefully, so they do not get a shock when it comes to the claim stage. In some cases, clients can also adjust excesses (reduce or increase) to suit their needs, and in doing so pay an adjusted premium.
Exclusions: No insurance policy will cover all losses. However, most insurers will know what the market needs are and provide appropriate cover to be competitive. Exclusions and limitations are largely there to ensure affordability, with the option to the buy additional cover at a premium. Some conditions relate to high or unacceptable risks, like a home alarm or a vehicle tracking device that needs be installed. With especially motor insurance, exclusions are one of the main pitfalls. Claims for mechanical or electrical breakdowns are not covered under a normal vehicle insurance policy and require a vehicle warranty policy. Cover for car hire may need to be added, or extras fitted to the vehicle may have to be insured separately. Be sure to check that your policy covers multiple drivers of your vehicle and make sure you have declared the use of your vehicle correctly for either business use or private use. In addition to the exclusions stated on your policy, you also need to inform you insurer of any material changes, such as a change of address or a change in the regular driver of a vehicle.
All-risks insurance: This mostly refers to items that are portable, such as jewellery, cameras, laptops, mobile phones or tablets. As a norm, if not specifically insured, these are generally still insured under your house contents policy, but only when they are at your home address. High-value items that can be removed from the risk address should be specified and then do not form part of the total value of the house contents. In recent years there have been developments with regard to the way cover is provided while contents are not at home, be it while at work, a child who is a student and living away from home, while travelling, and in general. The cover available in the market can differ substantially, so it is important to consider a scenario where your assets are not at home and test the policy cover against your needs.
All-risks insurance normally carries a higher risk and is therefore more expensive. Insuring everything you remove from your premises may not be the best financial solution. Due to the current economic climate or personal circumstances, it is therefore vital to evaluate the priority of specifying these items, and only insure the items you want to by considering the following aspects:
Personal liability: This refers to insurance against a third party suing you in your personal capacity for financial loss, physical injury or death. The most common form relates to your house-owner’s insurance, covering the structure of your home and its permanent fittings and typically includes medical costs, restoring or replacing damaged property, pain and suffering to the injured party, loss of income, legal costs and expenses. Standard cover for personal liability is between R2m and R5m, but this may not be enough to save you from financial ruin if someone does claim against you. Most insurers, therefore, offer top-up cover at a low additional premium, extending your cover to R10m or even R20m as in the case of Santam. As the chances of you claiming are very low, extended cover is highly affordable and probably well worth it.
One of the best general tips we can offer clients is to work with an expert when structuring short-term insurance policies. The Group’s intermediaries – or short-term insurance brokers – qualify via a series of regulatory exams and they really understand both the needs of the client and the structure and terminology of the insurance provider.
“Alternatively, clients could contact and interact with the insurer direct. As a result, policies are set up in such a way as to avoid these common pitfalls and ensure the client is adequately insured and claims are paid out when it comes to claim time,” concludes Blaauw.
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