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VIEWPOINT: Are You Over-Insured?

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Only insure what you can’t afford to lose.

My most valuable possession, by far, is my wedding ring. In my eyes, it’s the most beautiful thing I’ve ever seen. I designed it myself, while my husband (fiancé at the time) bank-rolled it. Meeting the requirements of being worth at least 3x his monthly salary; it’s a valuable piece of jewellery. If I were to lose it, I’d be devastated.

Have I insured it?

No.

I did enquire, but the best quote I got was R350 per month. That’s over R4 000 a year! And I can recall my mother once telling me that she could’ve bought her ring twice over with the money she’s spent insuring it over the years…

If I were to lose my ring, while the financial loss would definitely be felt, it would be the sentimental value that I’d never be able to replace, no matter how big the insurance pay-out.

This point was really driven home to me when my husband bought me a new watch as a Christmas present. I already have a watch, but he had left his shopping to the last minute, so when he dragged me into the shopping centre the day before Christmas, it was the only thing I saw which grabbed my attention.

Nonetheless, upon concluding the transaction the sales assistance asked us if we’d like to take insurance out on the watch. I was dumbfounded! Insurance on a watch? And it’s only a fashion watch, not even a big brand? If I lost the watch, then too bad. There’s no justification for forking out a premium every month to replace something that you don’t need, and that you probably wouldn’t even replace if you lost.

While I’m of the opinion that most people over-insure, there are certain things that you should be insuring… the things you can’t afford to lose! Your house, your car and the car of the person you drove into (because they might be driving a Porsche).

Now I’m not saying: “go cancel all your unnecessary insurance contracts and increase your disposable income”, but I am saying: “go cancel all your unnecessary insurance contracts and create your own form of insurance”. That talk is for next month though.

And I don’t want to hear any stories about how it’s ‘marginally’ cheaper to insure your house and your car and your furniture and your dog, if you go with one insurer. It still adds up. Pick only those individual items that you can’t afford to lose! ❐

Author: Gizelle Willows CA(SA), MCom (Finance), is a Lecturer in financial reporting at the University of Cape Town.