January 2019
Five common short-term insurance pitfalls
Your short-term insurance contract often seems to be overwhelming in its complexity, and particularly frustrating when your claims are not paid out in full.
Look out for the following five common pitfalls in the terms and conditions of a short-term insurance policy:
Underinsurance: To avoid this, ensure that the insured value of the item or property is equal to the current replacement value, not the original purchase price. Your premiums will likely increase with a higher replacement value, but it could save you a fortune in the long run. We often find that goods stay insured for the original value – for example, a dining room set bought 10 years ago would be insured for R6 000. But to replace the dining room set could cost R20 000 today, so the claimant could be left very disappointed when they leave the shop with an inferior product to what they had.
Excess: An excess amount is the first amount payable for which the client is responsible – it is the agreed amount of money you pay the insurer as a contribution towards repairs or replacement. 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 don’t get a shock when it comes to claiming. Even if clients have an excess waiver, additional excesses will apply and must be understood.
Exclusions: With motor insurance, exclusions are one of the main pitfalls. Clients often try to claim for mechanical or electrical breakdowns, but these form part of the car’s warranty and are explicitly excluded from most short-term insurance covers. 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
All-risk insurance: This refers to items that are mobile, such as jewelry, cameras, laptops, phones or tablets. These are generally insured under your household content policy only when they are at your home address. As soon as you leave the property, you need to supplement the cover with an all-risk addition to your policy. You should supply original purchase invoices or valuation certificates if applicable, to your insurance company, and keep a copy as proof of ownership.
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 is fixed in your householder’s insurance, covering the structure of your home and its permanent fittings, but further cover 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 offer top-up cover at a low additional premium – extending your cover to R10m or even R20m. If your chances of 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.
Why a Financial Advisor
Short term insurance is the insurance you take out on your assets such as your car, your house and your household contents. Businesses also require cover for stock-in-trade, plant and machinery etc. Despite the current proliferation of “direct” insurers who make much fanfare about “cutting out the middle-man”, an advisor experienced in short-term insurance can offer you a valuable and personalised service. Not only are they in a position to “shop the market” in terms of rates and service, but they often have more clout with the insurers when it comes to claims.
As Financial Advisors, we will do a complete review of your short-term insurance needs to make sure you are insured correctly and only pay for the cover you need, which can include:
Building insurance: Insure your house for its replacement or rebuilding value
Household insurance: Get full cover for contents inside and limited cover for contents outside your house
Car insurance: You can get comprehensive, limited (third party, fire and theft) or third party only cover for your vehicle
All risk insurance: Get cover for loss, theft or damage to items you normally carry with you outside your home
by Werner Swanepoel (Head of Short-term insurance)