The current economic climate has placed many South Africans under financial strain.
As a way to cut costs, some people may even consider reducing or stopping monthly insurance premiums. However, this can be a costly mistake as it leaves them exposed to potentially even greater financial risk in the future.
Instead, people should rather approach their financial adviser to discuss the various options available to them, as most insurance providers would rather try help a client find ways to save on current premiums without exposing them to risk of financial loss.
It is important to understand that one cannot simply skip a premium payment as they run the risk of the insurance policy lapsing.
If a policyholder fails to pay their outstanding premiums within the prescribed grace period, as stipulated in their policy, their insurance cover will very likely expire on the date of their last premium payment. If the policyholder decides to re-instate their cover a few months later, they might be required to take out a new policy and the monthly premiums may well increase with the inception of a new policy.
Policyholders should also pay special attention to the type of cover they are purchasing versus the premium they are paying.
A cheaper premium often means that the cover is not as comprehensive as the more expensive option.
It is important that policyholders consider the cover, excesses, extensions, exclusions, claims paying capability and service levels of the organisation, before settling for cheaper monthly premiums.
There are various factors which are taken into consideration when insurers determine a client’s insurance premium.
Therefore, policyholders should also consider updating their insurance policies to make sure all the information in the policy accurately reflects their current situation, especially when it comes to short-term insurance.
As an example, if the insured’s car is now parked in a locked garage or behind a secure gate, where it was previously parked overnight unprotected in the street, the vehicle will be considered a lower risk for theft and damage and therefore the motorist could possibly pay a reduced premium.
Similarly, when it comes to home insurance, should the homeowner install alarm systems and/or CCTV cameras on the property, he or she could possibly lower their monthly premium as the house is now at a reduced risk for house burglaries and robberies.
However, the rules often vary depending on the type of cover the policyholder has in place.
It is really a bad idea for someone to simply cancel an insurance policy to save money in the short term as they will be greatly exposed to risk of financial loss as they won’t be able to file a claim during this period.
When it comes to premium negotiations, the rules often vary between different insurers and depend on the type of cover the consumer has in place. Before making the decision to cancel insurance policies, take a minute to consider the broader implications of cutting that expense and try to get expert advice to determine what exactly the insurance policy covers and what is excluded. Policyholders will be pleasantly surprised at how far their insurance goes in protecting them against calamities far in excess of what they might have thought, but it is an absolute necessity.
Author: Tiffany Boesch CA(SA) is group financial director of PPS