Hacking the Short-Term Insurance Game
Consumers of local broadcast television know there are three certainties in life: Death, Taxes, and short-term insurance adverts.
Some companies promise money-back guarantees if you remain claim free over a predetermined period, while others promise on-going incentives if you drive well. What they all do, however, is promise you great savings and money in your pocket. Hopefully, when you finish reading this piece, you will know how to better manage your policy and get bang for your buck.
Why have short-term insurance in the first place? To minimize risk should you suffer a loss. Many of us do not have cash stashed away somewhere, waiting for a rainy day. And even if we do, it likely isn’t enough to cover a serious loss. If you run a gardening service using your Nissan half-ton bakkie, you might have enough money to cover the odd dent and scratch on your car, but what if you scratch your client’s Ferrari while reversing out of their property? Suddenly you have a hefty bill that could’ve been avoided by insurance. We all know a guy who knows a guy still paying off a car that was written off while still financed. Paying your premium might hurt, but sooner or later, you will thank yourself for it.
Given the current economic climate, many of us would appreciate having a bit more money after that dreaded insurance debit order hits, but changing insurers isn’t as simple as subscribing to the BankerX newsletter. A few things insurers won’t tell you about must be considered before embarking on the journey to save a few extra bucks by switching insurers.
1. You can ask for a discount from your current insurer
If you have been relatively claim-free, you have a good chance at getting one, especially if you let them know you’re reviewing your policy (i.e. looking at moving your policy). Insurers hate losing a client who doesn’t claim much.
Once you have their response, you need to evaluate whether you really are paying too much. Doing a quick comparison among your friends and family with similar risk profiles (similar age, security, type of car, etc.) could give you an idea. Spending all that time on the phone, then engaging with salespeople via email, doesn’t sound like an ideal way to spend an afternoon unless you really have to.
2. Service levels matter
If you’ve claimed before, was the experience fantastic, average, or below par? What would you rate their general admin out of 10? Is your annual renewal sent to you timeously? How easy is it to reach your insurer on the phone or via email? Do they deliberately seek to educate you about your policy? Saving a few bucks, to potentially get a lower service level isn’t worth it. Having a proficient team managing your insurance is better than watching your GameStop stock surge over 1,000% over a few days. Okay, maybe not, but it’s close enough.
The Ombudsman for Short-Term Insurance (Osti) receives complaints from dissatisfied clients of insurance companies and provides an annual report that is available to the public. You can use the report to gauge how satisfied an insurer’s clients are with their products, service, and administration. The report itself will not give you the full picture, but it’s a good place to start.
3. Comparing cover isn’t easy
Short-Term insurance policies aren’t the same. If you’re with company A and want to move to company B because it’s cheaper, you might not be getting the same amount of cover. ideally, both policies must be compared side-by-side should you get to that stage. This might be the most time-consuming part of the whole process because not everyone immediately understands insurance jargon, so ask a lot of questions.
What some policies cover, some will not, and some will offer limited cover. Knowledge of your policy is key. You need to know what exactly it is that you’re covered for, in order to compare your cover to whatever is out there before switching.
4. Re-evaluate your policy
You’re probably paying too much for insurance. Not because you’re being ripped off, but because you haven’t taken the time to evaluate your policy. For example, certain sums insured on your policy get automatically adjusted by your insurer each year at renewal, so you need to ensure the adjustments are adequate, and won’t leave you over or under insured once in effect. The premium is partly determined by the amount you want insured, so if you tell the insurer your household goods are worth R400k (sum insured/insured value), that is what your premium will be based on. Your items might cost less to replace.
The insured value for your household contents (these are items in your house you take with you when you move to another house) and portable possessions that you take with you when leaving the house, for example, should be as close to the current replacement value as possible, and not the amount you bought them for. Some items such as electronics, become cheaper over time. A 55-Inch Smart TV will be cheaper to replace in 2 years. Your iPhone 11 Pro that you had insured for R24k last year, is worth less now that the 12 Pro is out, so you might want to adjust the values accordingly.
It gets a bit complicated when the exact item you have is no longer available on the market. In that instance, the replacement value should be whatever is available on the market that is most similar to what you had. So, if Apple discontinues production of your Series 4 44mm Watch, you might want to look at the Series 5 value and use that as your insured value.
When doing this exercise for household contents, you might have to estimate some values, but try to be as accurate as possible. Remember to factor in the items you have bought or sold over the course of the year.
Your building typically isn’t insured for the amount you bought it for, but the amount it costs to rebuild it from scratch should you suffer a total loss. This includes professional fees, your exterior structures such as carports, the garage, any paving, as well as the boundary walls. It might be a good idea to ask your insurer to help you determine an insured value of your building every few years.
It is important to know precisely what you are covered for. For example, I recently discovered that my prescription spectacles are insured under Household Contents, so I didn't need to specify them under my portable possessions section. That saved me R35 a month, or R420 a year, which is about 10 Americanos in Sandton, or around 45 AMC shares.
Opting for a higher excess is a great idea if you hardly claim because that could get your premium reduced.
5. Beefing up your security can save you some money
Preventing loss is often better than suffering a loss and having to claim. If you develop an emotional attachment to your car like I do, losing it can be devastating. Without a tracking device installed, your chances of finding it are slimmer than supermarket chain store profit margins. Where you park your vehicle also matters. Parking it on the street, outside your yard, is riskier than, say, parking it in a locked garage behind locked gates overnight. Do you park your vehicle in an unsecure area while at work? If so, that might be costing you money each month. Admittedly, this might be out of your control.
Where your property is concerned, keeping criminals out is best. Having an alarm linked to armed response is unfortunately a must if you can afford it, whether you have insurance or not.
6. Consider self-Insurance
Certain items you can afford to lose and replace from pocket should be excluded from your policy. These could typically be low-value items that you are due to replace anyway. If they’re on your policy, then you’re spending money on them every month unnecessarily.
With your vehicle, you can look at insuring your vehicle for third party damage only, which means only the damage you caused to a third party will be covered. Fire and Theft cover can be added to Third Party Only cover. This means you’re still not covered for accidents and any physical damage besides fire but will be covered for third party damages and the theft of your vehicle.
The key to making your policy work for you is knowing exactly what you’re covered for while actively managing and keeping the small things in check. Not doing this leads to you gradually paying more than you have to.
More money in your pocket potentially means more money available to BTFD!